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Tax Planning for an International Bank License

06/25/2017/0 Comments/in Articles, Offshore Bank License, Puerto Rico Tax Incentives, Taxation/by Christian Reeves

Tax planning for an international bank license is the most overlooked issue in startup banks. Sure, most offshore jurisdictions don’t tax your profits, but other countries will be looking for their cut if you set up an office or hire employees outside of your licensing jurisdiction. Here’s what you need to know about tax planning for an international bank license.

This article is focused on international bank licensed entities, sometimes referred to as Class B banks. An international bank is usually setup in a low or no tax offshore jurisdiction. As a condition of the license, these banks are prohibited from doing business with locals but can offer all manner of international banking services.

Countries either charge a large annual fee to allow an international bank to operate in the country, or a small tax on your earnings and profits. For example, the Cayman Islands Monetary Authority charges about $87,000 a year, plus other fees, to maintain an international license. Cayman won’t tax your business and makes their money on the annual fees.

I don’t consider Panama here because this country doesn’t issue international banking licenses to startup banks. You must have an existing license from a major jurisdiction to get an international license in Panama.

Smaller countries like Belize charge an annual fee of $15,000 and Dominica $10,000. Puerto Rico charges 4% tax on the net profits of the bank and a $5,000 annual fee.

So, the tax rate on income earned by an international bank will be 0% to 4% depending on the jurisdiction you select. That’s all fine and good… so, why does and international bank need “tax planning?” Taxes are very low no matter where you set up.

Here’s the catch: These 0% to 4% tax rates apply to income earned by the bank in its country of licensure.

If you license an international bank in Dominica, all your employees are in Dominica, and all work to generate the earnings of the bank are performed in Dominica, then 100% of the profits of the bank are Dominican sourced income and zero tax will be paid in Dominica.

But, what if you have an international banking license in Dominica, a small office with 2 employees on the island and 30 employees in the UK? The vast majority of the income of the bank will be allocated to the UK and taxed at 19%.

Do you also have a trading desk in Hong Kong? Then some of the profits will need to be allocated to that country and taxable at 16.5%. How about a sales office in the United States? Then income allocatable to that office will be taxed at 35%.

The bottom line is that income is sourced to the country where the work is performed to generate those profits. An international banking license gets you 0% to 4% on income earned in the country where you are licensed. All income earned abroad will be taxed where your employees are located.

Thus, tax planning for an international banking license includes two main components:

Maximizing the value attributable to workers in the country that granted your international banking license, and
Allocating income between your country of license and your foreign offices. This is a form a transfer pricing.

How much tax planning your international bank will need will depend on your business model. If you require 5 employees for a high dollar low volume business, then Dominica and Cayman will be fine. If you need 20 employees to start and plan to grow to over 100, then you should focus on Puerto Rico are a more advanced global tax strategy.

The simplest form of tax planning for an international bank is where all work is performed in your country of licensure. This is difficult in Belize with its population of 350,000 and nearly impossible in n Dominica with only 72,000 residents. While there is an abundance of professionals in Cayman, the costs of living and doing business on this island are very high.

The exception is the US territory of Puerto Rico. With a population of 3.5 million, and lower costs of doing business than any State in the Union, Puerto Rico is the most efficient jurisdiction for an international bank that will require a large number of employees. In fact, Puerto Rico is probably the only choice for a high volume transactional international bank if you want to keep your corporate tax rate below 15%.

There are international banks with over 400 employees in Puerto Rico and startups projecting 180 coming online. Puerto Rico is the only offshore jurisdiction that can support these numbers.

Yes, Puerto Rico is relatively large compared to other offshore banking jurisdictions, but that’s just part of the puzzle. Any US citizen can move to Puerto Rico and begin working… no visa, residency permit, work permit, or other red tape.

This means that an international bank licensed in Puerto Rico can move anyone it likes from the United States to the island. This gives you a virtually unlimited employment pool if you have the cash to entice them to move.

For these reasons, the fastest growing international banking center is Puerto Rico. The Island has 63 international banks operating now and 12 are in process. These banks will launch in 2 to 6 months.

This compares to 6 international banks in Belize, 15 in Dominica and 147 in Cayman (who has a 20 year head start on Puerto Rico). I expect Puerto Rico to surpass Cayman in the next 2 or years.

I hope you’ve found this article on tax planning for an international bank license to be helpful. For more on negotiating a bank license from Dominica, see: How to get an Offshore Bank License in Dominica.

For more on international bank licenses, see:

For more on Puerto Rico see:

For assistance in setting up a new international bank, or to negotiate a new correspondent account, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

Panama is getting out of the offshore banking business

06/23/2017/0 Comments/in Articles, Banking Offshore, International Business, Offshore Bank Accounts, Offshore Banking, Offshore Company, Panama/by Christian Reeves

Panama is making an exit from the offshore banking business. No longer can you open a bank account in Panama and operate it from abroad. Banks now require a physical presence, tax filings, a business license, and an office address in Panama.

Panama has been under a lot of international pressure over the last 2 years. They’ve finally given in and bent to the wishes of the United States. They’ve thrown in the towel on international banking and remote businesses.

The first big hit came in early 2016 when the US government alleged one of the top 5 families in Panama was in fact a money laundering cartel. Uncle Sam swooped in to save the day, shutting down Balboa Bank, and arresting everyone associated with the Waked family.

This action put thousands of Panamanians out of work and Mr. Waked is being held in the US without bail awaiting trial. It looks like his trial will begin in late 2018, though the preliminary date is October of 2017.

Just one month after Waked came the biggest hit to the privacy and protection of Panama – the Panama Papers.

The German newspaper Sueddeutsche Zeitung obtained 11.5 million files stolen from the Panama law firm of Mossack Fonseca and shared them with a group of investigative journalists. This trove of documents became known in the press as the Panama Papers.

The Panama Papers shone a light on many illegal uses of offshore corporations and offshore bank accounts. Vice put it bluntly in April, “The politicians who have taken and made bribes, dodged taxes, and amassed fortunes of unimaginable scale are your politicians.”

Click here for my interview with Vice on who should be afraid of the IRS and Panama Papers.

Fast forward 10 months and the Panama Papers have caused a political firestorm in Panama and throughout Latin America. The scandal brought down Panama’s previous President Ricardo Martinelli, who is being held in the US for extradition back to Panama, and looks like it will take out their current President Juan Varela (who was the Vice President under Martinelli).

The Panama Papers apparently show that $800 million in bribes were paid across Latin America by the Odebrecht construction company in Brazil. Of this, about $59 million went to friends of Martinelli.

Most of the $800 million was allegedly laundered through Panama in what the local papers are calling Brazil’s Lava Jato (car wash money laundering ring that would make Walter White proud).

Then, in February of this year, Varela decided all these troubles where the fault of the lawyers they’d hired – Fonseca and Mossack. The founders of Panama Papers law firm were a arrested on money laundering charges… and Ramón Fonseca has already begun to strike back. He says Varela told him he’d accepted cash payments from Odebrecht.

Varela has said that he didn’t take any bribes. Apparently the millions received from Odebrecht were “campaign donations.”

The bottom line is that Panama is in a tailspin and needs to revamp its image. They’re fighting the war on corruption from abroad on two fronts: 1) getting out of the offshore banking business, and 2) requiring a residency visa from anyone that makes multiple trips to Panama over a 12 month period.

As to residency in Panama, if you’re living in Panama, making multiple visits to the country in a year, or spending more than 60 days in Panama over a 12 month period, you must get a visa. The government is cracking down on people “living” in the country without a residency permit.

Then there’s offshore banking. No longer can persons living and working abroad open a business bank account in Panama. A Panama corporation must now have a business permit, a physical office, and be operating in the country to get a bank account in Panama.

The same goes for personal accounts. Only those with with residency permits will be allowed to open personal bank accounts in Panama. No more personal accounts unless you can prove you have ties to the country.

Even with all this water under the bridge, Panama remains a strong international business hub. It’s the banking center of Latin America and its foundations provide some of the best asset protection and estate planning available.

If you want to do business in Panama, make multiple trips to the country, invest, or protect your assets there, you now need to pay to play. You need to get a residency visa if you want access to this market.

The easiest and lowest cost residency permit in Panama is the Friendly Nations Reforestation Visa. Invest $20,000 in their green initiative and get residency for you and your family (spouse and dependent children under 19). For more on this, see: Best Panama Residency by Investment Program.

Other options for residency include buying a bond for $200,000 or real estate of more than $350,000. In my experience, the teak program is best for anyone from one of the 50 friendly nations. If you’re from a country that doesn’t have an agreement with Panama, such as China or India, the bond or real estate is the best deal you can get.

I hope you’ve found this review of Panama’s troubles to be helpful. For more information on residency in Panama, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to negotiate your residency and open personal and business bank accounts for you.

alhijab wamaqatie alfidyu aljinsiat alearabiat almajania

06/21/2017/in Articles/by design

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How to Raise Money for an International Bank

06/21/2017/0 Comments/in Articles, Banking Offshore, International Business, Offshore Bank License/by Christian Reeves

Blockchain and cryptocurrencies are the future of offshore banking. Ledger based protocols allow offshore banks to compete with legacy banks by reducing wire transfer and remittance costs. Now, cryptocurrency has become the best way to raise money for an international bank.

Here’s how to raise money for an international bank with zero filing requirements, no Securities and Exchange Commission rules, no quarterly reporting, and no required public disclosures. Here’s how to fund an offshore bank with an ICO (Initial Cryptocurrency Offering).

The problem for an offshore bank in selling shares directly are obvious. Shareholders have zero liquidity. Their only exit is to hope the bank is acquired or some random person comes along to buy their shares at a premium.

Don’t even think of an IPO in a major market with an international banking license. Even if you could get listed, the regulation would kill your business. That leaves you to pink sheets or small exchanges like Panama or the Eastern Caribbean Securities Exchange… and we’re back to zero liquidity.

Cryptocurrency can solve this problem. Offshore and international banks can now raise money and provide liquidity to their shareholders through cryptocurrency. No matter where you’re licensed, Dominica, Cayman Islands, Cook Islands, Puerto Rico, Gibraltar, Luxembourg, and anywhere inbetween, you can now issue “cryptoshares” which are 100% liquid.

A company called Bancor has developed a protocol that allows anyone to issue their own digital “smart tokens.” These tokens are linked to a cryptocurrency and can be converted at any time by the owner. This provides liquidity and a market price from day one. Click here for a whitepaper by Bancor.

And we’re talking about real money here. Bancor used it’s token protocol to raise nearly $150 million in 3 hours!

Bancor issued its own tokens and raised about 390,000 Ethers (a crypto-currency that competes with Bitcoin) in its initial coin offering. That’s $147 million spread over 11,000 buyers. According to Bancor’s website, this is the second-largest fundraising campaign in the blockchain industry.

Bancor will hold 20% of its tokens in reserve to ensure liquidity. They’ll convert what they need to dollars to use it as any startup does, for operating costs and to grow the business. The investor hopes the value of the business, and thus the value of their tokens, will increase.

Of course, the investors are taking a risk that Ethers will go down in value. But, that’s the crypto game. Also, the tokens can be revalued and linked to any crypto or FIAT currency the investor chooses, providing the buyer a hedge or FX option not available in other investments.

Bancor is new and not yet available to the public. There are operating ICO platforms in China and one ready to launch in the United States. However, the US market will require SEC and Reg D compliance. Click here for an article from Wired on the topic.

Here’s why an ICO is the perfect way to capitalize an international bank: In an ICO, investors don’t get equity in the venture, nor do they lend money… they speculate on the future value of the tokens they buy.

So, in theory, the transaction doesn’t need to be reported to the bank’s regulators. No due diligence from the regulator, no background check, and none of the headaches associated with selling equity in an internationally licensed bank.

In order to minimize your disclosure requirements, I would add two caveats:

Have your international banking license, or at least your preliminary offshore banking license / permit to organize, in hand before announcing any intention to issue an ICO.
Form a holding company that owns the cryptoshares of the bank and sell tokens from that entity. This corporation might be registered in a jurisdiction different from where the bank is licensed and modeled after a US bank holding company.

In most jurisdictions, you’ll receive a preliminary international banking license before you’re allowed to go live. The costs to secure this license are relatively low. Once it’s issued you can go out and raise capital.

For example, you’ll get a permit to organize from Dominica with $1 million in capital and about $100,000 spent on a business plan and legal services. You’ll get a preliminary license from the US territory of Puerto Rico at about the same cost, but don’t need to put up the corporate capital ($550,000) until you’re ready to launch.

The permit to organize is a preliminary license from the government that indicates their willingness to issue a full license once you comply with certain requirements. A permit to organize allows you to incorporate your company, hire employees, lease space, set up your IT, and raise capital using the word “Bank” in your company’s name.

Moving from the permit to the full license is a mechanical process because the government has already approved your people and your business model. Securing the permit before you raise money eliminates much of the risk for the investors.

Because of the liquidity and privacy afforded investors, and the relative ease and reduced costs for the bank, I believe an ICO is the most efficient method for international banks to raise capital.

And cryptocurrency and blockchain are natural extensions of the modern offshore bank. From correspondent banking to the transfer of FIAT currency, blockchain is where it’s at for offshore banks.

See, for example: Correspondent Banking Powered By Machine Learning And Using Blockchain

I hope you’ve found this article on how to raise capital for an offshore bank helpful. For more on setting up an international bank or raising capital, please contact me at info@premieroffshore.com or call (619) 483-1708.

How to Eliminate Subpart F Foreign Base Company Service Income

06/15/2017/0 Comments/in Articles, International Business, Offshore Company, Taxation/by Christian Reeves

In this article I’ll explain how to eliminate Subpart F Foreign Base Company Service Income issues in an offshore corporation. Subpart F issues are the most common tax planning hurdles to overcome when you have a division of a US company operating abroad. Subpart F applies to income of a Controlled Foreign Corporation (CFC).

This article is focused on service income of a foreign division. Service income is earnings and profits generated by work done in a foreign country or a US territory. Service income is not profits from the sale of a physical good into the United States market.

This analysis applies to a business setup in a low tax country, such as Panama, or in the US territory of Puerto Rico under Act 20. For a basic summary of offshore and Puerto Rico, see: Panama vs. Puerto Rico, which is right for your business?

Sub F foreign base company service income is defined under Section 954(e) of the Internal Revenue Code as income derived in connection with the performance of technical, managerial, engineering, architectural, scientific, skilled, industrial, commercial, or like services that are performed for, or on behalf of, a related person, and are performed outside the country under the laws of which the CFC is incorporated. Under this definition, income earned by a CFC will constitute foreign base company services income only if it satisfies all three of the following tests:

The income is derived in connection with the performance by the CFC of certain specified services;
The services are performed by the CFC for, or on behalf of, a related person or company; and
The services are performed outside of the country in which the CFC is organized (IRC Section 954(e)(1) and Treasury Reg 1954-4(a)).

Thus, where a CFC performs services for a related party through a branch established outside of its country of incorporation, it may incur “foreign base company services income.”

Income that is deemed to be foreign base company services income is not eligible to be retained offshore tax deferred and not eligible to be tax free in Puerto Rico under Act 20. That is to say, Subpart F income must be included in the parent company’s US tax return and is taxable in the United States as earned.

EDITORS NOTE: On July 11, 2017, the government of Puerto Rico did away with the requirement to hire 5 employees to qualify for Act 20. You can now set up an Act 20 company with only 1 employee (you, the business owner). For more information, see: Puerto Rico Eliminates 5 Employee Requirement

There is no US tax benefit when Sub F income, including foreign base company services income, is generated in an offshore or Puerto Rican corporation. Thus, all service businesses must strive to eliminate Sub F income and must be prepared to deal with the issue in an audit.

The easiest way to avoid Sub F base company service income issues is to ensure that the services are performed where your offshore business is incorporated. This means that your business should be operated from a low cost and zero tax jurisdiction such as Panama or Puerto Rico.

Where US businesses often run into problems is in setting up a Cayman Islands corporation (in a high cost offshore jurisdiction where they won’t have any employees) and then hiring independent contractors in Latin America and India. You should be hiring employees and building a real division offshore… not just using a shell company to manage independent contractors.

I see the same issue when US companies set up divisions in low cost but high tax countries like Mexico. The Mexican corporate tax rate is 28.5% compared to the US rate of 35%, so not much savings there. Also, Mexico taxes the worldwide income of its corporations.

So, companies incorporate in Panama (which taxes local sourced income but not foreign sourced profits) and put the employees in Mexico, hoping to get the best of both worlds.

If your employees are providing a service from Mexico, and the business operates through a Panama corporation, you’re opening yourself up to Sup F foreign base company service income issues.

The other way to avoid Sub F foreign base company service income issues is for the offshore corporation to contract directly with the customer. The foreign company should contract with the customer and the customer should be paying the foreign company, not the US parent.

Basically, if the US parent is obligated to perform the services which are performed by the CFC, the income earned is attributable to the US company. This can be avoided by having the customer contract directly with the client such that the parent is not responsible for the service.

Also, the “related party” rules can apply if the foreign division receives “substantial assistance” from the US parent. To avoid this part of the test, the foreign division should be operating independently such that the work, as well as the mind and management of the business, is performed in the offshore jurisdiction (the country of incorporation). IRC Section 954(e)(1) and Treasury Reg 1.954-4(a). See also IRC Notice 2007-13.

When it comes to avoiding Subpart F of the US tax code, the US territory of Puerto Rico can provide significantly more cover to a CFC than any offshore jurisdiction. A corporation in Puerto Rico is a US entity for contract purposes and can open a bank account anywhere in the United States.

That is to say, a corporation from Puerto Rico can open a bank account at Wells Fargo in California, Bank of America in New York, or wherever it’s owners have a relationship. While an offshore company can only bank outside of the United States, a Puerto Rican company can bank where it likes.

These facts make doing business through a Puerto Rican company much easier than a foreign entity. This is especially true in high volume low dollar transactions. No one is going to send an international wire for a $200 product.

I hope you’ve found this article on how to eliminate Subpart F Foreign Base Company Service Income issues in an offshore corporation helpful. For more information, or for assistance in planning or forming a division in Puerto Rico or offshore, please contact me at info@premieroffshore.com.

Are you living in Panama without a visa? Watch out, the government is targeting expats!

06/13/2017/0 Comments/in Articles, Panama, Second Passport, Second Residency/by Christian Reeves

If you’re living in Panama, making multiple visits to the country in a year, or are spending more than 90 days in Panama over a 12 month period, you must get a visa. The government is cracking down on people “living” in the country without a residency permit.

Per the U.S. Embassy in Panama: “The US Embassy in Panama would like to inform all US Citizens in Panama that on March 6th 2017, the Panamanian Immigration Authority (Servicio Nacional de Migracion-SNM) announced new guidance for Panamanian immigration officials on the enforcement of pre-existing regulations. According to the SNM, immigration officials have been instructed to be stricter about the enforcement of the regulation that foreigners entering Panama with tourist status prove that they are in fact entering Panama as tourists and not residing in Panama.”

The above warning was issued by the US Embassy in Panama to US citizens. But it’s equally valid for anyone making multiple trips to Panama within a year. Whether you’re from the US, Canada, Latin America, UK, or the EU, you’re at risk of being refused entry to Panama.

Also, Panama is adding stronger requirements to the “onward departure” rule. Whenever a tourist enters Panama (or just about any country for that matter), you’ve always needed a fight out… a departing flight… a onward departure. Tourists can’t usually enter a foreign country on a one-way ticket.

For example, I could fly from California and fly out in 90 days to Medellin, Colombia. Since this was the cheapest flight, it costs me less when I cancel and stay in Panama.

As of 2017, proof of onward departure may no longer be sufficient. Panama is sometimes asking for proof of a return flight to the country from which your passport is issued. This can be a HUGE headache for those living in a country other than their country of birth.

There are several reasons for the change. First, Panama wants to increase fees and keep closer track on people “living” in their country, using their services, driving on their roads, and crossing the border multiple times in a year.

For years, many of us have been living in Panama without getting a visa, without paying any taxes, and without paying any government fees. We’ve been entering as tourists, leaving for a weekend party trip to Colombia or Costa Rica every couple months, and returning to Panama.

I did this for 3 years and never had a problem. I even did the border walk from Panama to Costa (Puerto Viejo). Walk across from Panama to Costa Rica, stay for an hour at the border bar, and walk back… usually paying the border guard $20 to modify the date on your stamp.

Now, it’s a new world where the government needs to increase control and fees.

Second, the Panama Papers put a lot of negative attention on Panama. Banks, airlines, and everyone in between is worried about being mixed up in money laundering. One way to fight this stigma is through tighter border controls.

And it’s not just the Panama Papers causing the problem. The US government has been all over Panama for the last few years and Papers gave them the news coverage they needed. For example, the US Government Shutdown Balboa Bank back in 2015. This had a big impact on the economy as thousands of locals lost their jobs.

All of this has forced Panama to appear stronger in fighting money laundering. One of the ways they’re doing this is by tightening border crossings. It’s all about appearances, even though it’s causing great pain for many of us expat entrepreneurs.

Third, pressure has been put on the government by real estate developers in the country (pressure or payment, however you see it) to increase sales. The most common residency visa for those living in Panama is to buy a condo in the city with a value of $350,000 or more.

But there is a way for those of us from friendly nations to get residency in Panama without buying real estate and without those high carrying costs.

If you’re from the US, Canada, UK, EU, or any of the 50 Friendly Nations, you can get residency in Panama through the Friendly Nations Reforestation Visa program. Invest $20,000 in teak and get residency immediately.

No more questions about how many days you spend in Panama each year. No more worrying at the border crossing. No more buying and cancelling airline tickets. No more pirate style border runs (though, they were fun).

Simply invest $20,000 to help keep Panama green and you’re in. And this investment amount will cover you and your family (your spouse and dependent children under 19). Legal and filing fees will apply to each person, but the investment amount remains the same.

And US citizens can make this investment using their IRA. Invest your retirement money in teak, and pay the fees with personal money to ensure compliance with US rules. For more, see: How to get Residency in Panama Using Your IRA.

The bottom line is this: If you have significant ties to Panama, you must get a residency visa. If you have investments in the country, spend more than 90 days a year there, or make multiple trips within a 12 period for any reason you need a visa.

The easiest visa to get is the Friendly Nations Reforestation Visa. If you don’t want to buy a condo in the city, take a look at this teak program.

For more information on this and other Panama residency programs, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to review your options and get you residency in the most cost effective way possible.

Pay Zero Income Tax the Legal Way

05/30/2017/0 Comments/in Articles, Banking Offshore, International Business, Offshore Company, Offshore Company Taxation, Puerto Rico Tax Incentives/by Christian Reeves

The internet is filled with Idiots selling scam programs that will teach you how to pay zero income tax. They’re all full of BS and infuriate those of us who try to write about legal ways to protect your assets and minimize your income taxes. In this article I’ll talk about the only legal ways to pay zero income tax on your business and capital gains offshore.

This post is meant for US citizens or green card holders willing to do what it takes to reduce or eliminate their US taxes.

I’ll tell you upfront that paying zero income tax the legal way is VERY difficult. It takes a lot of work and commitment on your part. There are no tricks or easy solutions. To pay zero income tax requires moving you and your business out of your comfort zone… not necessarily out of the United States… but, I’ll get to that in a bit.

And I’m not talking about retirement accounts or other US methods for reducing or deferring US tax. I’ll assume you’re making too much money to benefit from those accounts or that you already have your IRA and 401-k plans setup.

As I said, the web is filled with scam artists pitching all kinds of ways avoid US taxes. Tax lawyers call these guys tax protestors (and morons) and they refer to themselves as sovereign citizens. They’re using straw man companies and sham trusts to claim they earn no “income.”

I won’t get into these bogus arguments because they’ve been debunked time and time again. At this point, tax protestors are just a sad commentary on how gullible some people are. These cases are so cut and dry that lawyers can be sanctioned for wasting the court’s time.

Another issue to watch out for when searching the web are claims that you can operate tax free in a foreign country. These are true statements by providers in the country where you will incorporate… but meaningless to US citizens.

For example, you call a lawyer in Panama to set up a corporation there. You ask them if your structure will pay any tax… and they say no, it does not. It’s totally tax free! They’re talking about the tax laws of Panama. That’s great but, as a US citizen, you’re focused on US tax laws because that’s your real risk.

The provider in Panama is not trying to mislead you. He’s simply telling you the law of his country. He’s an expert in Panamanian law, thus his comments are limited to that country. This is why you always need a quarterback in the US who can show you how US tax laws interact with those of the foreign jurisdictions you’re setting up in.

There are basically four legal ways to eliminate US tax by going offshore. They are:

Offshore captive insurance,
Offshore life insurance,
Set up a division of your business offshore, and
Move to Puerto Rico to eliminate capital gains tax.

Offshore Captive Insurance Company

An offshore captive insurance company allows you to provide insurance to your active business. You form an offshore captive insurance company in Bermuda, Cayman or Belize, and insure against risks not covered by your traditional policies.

As of 2017, the US IRS will allow you to deduct up to $2.2 million of insurance premiums paid to an offshore captive insurance company owned by you. For previous years, the amount was $1.2 million.

By insuring against risks with a low probability of occurring, you effectively move $2.2 million of pre-tax income off of your corporate books in the US and onto an offshore captive insurance company. These transfers then accumulate offshore tax deferred until you close down the structure.

For more, see: The Mini Offshore Captive Insurance Company. This article was written before the deductible amount was increased from $1.2 to $2.2 million.

Offshore Life Insurance

Offshore life insurance, typically offshore private placement life insurance basically allows you to create an “offshore ROTH” without any of the contribution limits or distribution requirements.

You can put as much after tax money into an offshore life policy as you like and it will remain in the plan tax deferred. That is to say, you will pay zero tax on capital gains inside the life policy so long as the plan is active.

If you decide to shut it down and take a distribution, you will pay US tax on the increase in value. If you leave the policy in place until your death, the value will pass to your heirs tax free. Neither you nor they will ever pay US tax on the gains because of the step-up in basis they receive.

You also have the choice of borrowing against the policy. If you need access to the cash, you can take out a loan.

The minimum investment for these offshore life policies is usually between $1.2 to $2.5 million depending on the provider and other factors. For more, see: Benefits of Private Placement Life Insurance.

Offshore Business

If you move you and your business offshore, you can earn up to $200,000 a year tax free. If you move a division of your business offshore, you can get tax deferral on any foreign sourced profits that business generates.

If you move abroad and qualify for the Foreign Earned Income Exclusion, you can earn $102,100 per year free of Federal income tax from your offshore business. If a husband and wife are both working in the business, and both qualify for the Exclusion, you can take out over $200,000 combined.

To qualify for the Exclusion, you need to 1) be a resident of a foreign country and out of the US for about 5 months a year, or 2) out of the US for 330 out of 365 days. It’s much easier to qualify for the FEIE as a resident, so I strongly recommend you consider one of the easy and low cost second residency programs.

For example, you can become a resident of Panama with an investment of $20,000 and Nicaragua for $35,000. Panama is the easiest because this one doesn’t have a physical presence requirement. For more, see: Best Panama Residency by Investment Program.

If you’re not ready to move you and your family offshore, but can setup a division of your business offshore, then you can defer US tax on income attributable to that division.

Assuming your offshore team can operate independently, income they generate should be eligible to be held in the offshore corporation tax deferred. When you take it out as a dividend, either personally or as a transfer to the parent company in the US, you will pay US tax. For more, see: Step by Step Guide to Taking Your Business Offshore

Move to Puerto Rico

Even if you go offshore, you’re still going to pay US tax on your capital gains. So long as you hold a US passport, the IRS wants it’s cut of your investment profits. The only exceptions are investments inside a US compliant life insurance policy (described above) and capital gains for residents of Puerto Rico.

When an American moves to a foreign country, they’re subject to US Federal Income Tax laws. All US citizens and green card holders must pay unto the IRS.

The only individuals exempted from this rule are residents of the US territory of Puerto Rico. US Tax Code Section 933 excludes residents of Puerto Rico from US Federal tax laws. This means that Puerto Rico is free to create it’s own tax system, which it has done.

If you set up a service business in Puerto Rico, one with at least 5 employees on the island, you can qualify for a 4% tax rate on your Puerto Rico sourced income. To see how this compares to the FEIE, see: Panama vs Puerto Rico.

Even better, if you move to Puerto Rico, spend a minimum of 183 days a year on the island, and otherwise qualify for their Act 22, you’ll pay zero tax on your capital gains. That’s right, without any of the costs or limitations associated with a private placement life insurance policy, those willing to live in an island paradise can pay zero income tax on their capital gains.

For more on how to pay zero tax in Puerto Rico, see: How to stop paying capital gains tax.

Conclusion

I hope you’ve found this article on how to pay zero income tax legally to be helpful. For more information, and a consultation, please contact us at info@premieroffshore.com or call (619) 483-1708. We’ll be happy to assist you to structure your affairs offshore in a tax compliant manner.

How to benefit from Puerto Rico’s bankruptcy

05/24/2017/0 Comments/in Articles, Offshore Bank License, Puerto Rico Tax Incentives, Taxation/by Christian Reeves

The US territory of Puerto Rico is going through some tough times and will enter bankruptcy in the next few months. Puerto Rico is set to become the largest bankruptcy case in the history of the American public bond market. Here’s how you and your business can benefit from Puerto Rico’s bankruptcy.

Puerto Rico plans to file bankruptcy on $123 billion of debt owed by the government and its public corporations. Most is owed to bondholders and public employee pension systems. The bankruptcy is an attempt to deal with creditors while keeping public services going and will likely mean a 60% haircut for bondholders.

By comparison, Detroit’s bankruptcy was for $18 billion — one-ninth the size of Puerto Rico’s. Puerto Rico has a long way to go to reach the largest bankruptcy in history. Greece owed $220 billion in bailout cash when it defaulted.

Bottom line: Puerto Rico is in financial crisis… there’s blood in the streets… now is the time to make money!

Now is the time to setup a business in Puerto Rico.

Because of these financial woes, Puerto Rico is offering a number of tax holidays to new businesses. If you move a service business to Puerto Rico, and hire 5 employees on the island, you’ll cut your business tax rate to 4% on Puerto Rican sourced income.

Just about any business that can provide a service from Puerto Rico to companies and persons outside of Puerto Rico will qualify for this tax deal. This includes banks, brokerages, investment advisors, internet marketers, call centers, technical support, and most online business.

If your business is portable, and requires at least 5 full time employees, you should consider relocating to Puerto Rico. For more see: Puerto Rico is the Top Offshore Business Jurisdiction for Americans.

In addition to online and portable service businesses, the following licenses qualify a 4% tax holiday guaranteed for 20 years:

International banks licensed in Puerto Rico under Act 273,
Investment advisors, funds, and family offices operating as International Financial Entities,
Payday lenders with a hybrid license,
Fund managers with an offshore master/feeder, and
Offshore FinTech banks operating from Puerto Rico.

And here’s the killer: Individuals who spend 183 days a year or more in Puerto Rico, and qualify as residents under Act 22, have a zero percent rate on passive income. Dividends from your Act 20 company are tax free, as are capital gains on assets acquired after moving to Puerto Rico. For more, see: Who is a Resident of Puerto Rico for US Tax Purposes.

Move your business to Puerto Rico and get tax deferral at 4%. Move you and your business to Puerto Rico and get tax free!

Puerto Rico is offering some amazing tax deals to businesses and high net worth individuals. The purpose of these tax deals is to bring employment to the island. The reason these tax deals exist is that Puerto Rico desperately needs jobs.

That is to say, Puerto Rico is making you an offer you can’t refuse because they’re broke… because Puerto Rico is in bankruptcy… because there’s blood in the streets.

And these offers from Puerto Rico come with a number of guarantees and protections. Yes, you’re investing in a distressed territory, but you have the protection of the US government and the guarantee of the Puerto Rican government.

As a territory, Puerto Rico is a hybrid. The island is exempted from US Federal tax law and free to create it’s own tax code. At the same time, most other Federal laws apply, such as employment, FDIC, etc.

Only Puerto Rico can offer these tax deals to US citizens because only Puerto Rico is exempted from the US tax code. Of the territories, only Puerto Rico has built a business friendly tax code.

Banking in Puerto Rico

Federal tax law applies to all US owned business abroad and all American citizens and green card holders living in foreign countries. Only American’s living in Puerto Rico are exempted from US Federal tax. For a comparison of Federal income tax of American’s abroad and Puerto Rico’s tax deal, see: Panama vs. Puerto Rico.

Yes, Puerto Rico is in bankruptcy, but their banks are protected by US law. Puerto Rico won’t go the way of Cyprus because all of their local banks are FDIC insured. There’s no risk of the government seizing the assets of depositors.

Local banks that accept deposits from Puerto Rican residents are required to have FDIC. Offshore banks licensed under Act 273 generally don’t apply for FDIC coverage.

And the state of banks in Puerto Rico is irrelevant to you. There’s no requirement to hold your income or retained earnings in Puerto Rico. The only requirement for retained earnings is that they remain inside a Puerto Rican corporation.

So, form a Puerto Rican company and open a bank account in the United States. You can hold your cash at your favorite US bank with zero risk from Puerto Rico.

That is to say, a Puerto Rican company can open an account anywhere in the US. You can take your company documents into any Wells Fargo, Bank of America, or Citibank and get an account opened in a matter of minutes. While it’s impossible to open a US account for an offshore corporation, a Puerto Rican company is treated just like a structure from Delaware or Nevada by US banks.

20 Year Tax Holiday Guarantee

More importantly for a business seeking stability in Puerto Rico, your 4% tax holiday is guaranteed for 20 years. No matter how the political winds blow, your tax deal can’t be reviewed or revoked by the government of Puerto Rico. Even if the law is amended or repealed, you’re golden.

And only the government is locked in. So long as you have 5 employees in Puerto Rico and comply with the rules, you’re guaranteed a 4% tax rate on your Puerto Rico source income. If you want to walk away, you can shut down at any time without penalty.

As to a change in the law, once your company is set up and your tax deal approved, a change could be a great thing. I often tell clients that they should hope the law is repealed. When that door closes, the acquisition value of their Puerto Rican business will increase significantly.

Conclusion

Puerto Rico is offering you a tax deal you can’t refuse… and a deal that can’t be matched by any foreign country. For more information, please contact me at info@premieroffshore.com or call us at (619) 483-1708 for a confidential consultation on moving you and/or your business to Puerto Rico.

The 8 Components of an Offshore Bank License

05/23/2017/0 Comments/in Articles, Banking Offshore, Offshore Bank License, Offshore Banking/by Christian Reeves

When building a new offshore bank, you need the following 8 components: The business plan, the capital, the people (board of directors, management, and employees), the computer systems, the compliance system, the license, a correspondent account, and a tax plan. These are the 8 components to negotiate an offshore bank license and set up a new international bank.

These 8 components are somewhat unique to offshore banking. Because you’re entering a licensed and highly regulated industry, building a new offshore bank requires you develop each of these areas to the satisfaction of your licensing board.

A new offshore bank obviously needs all the same things any startup would, such as a solid business strategy, sales, money, experienced people, etc. This article is on the 8 components an offshore bank required which are different from a standard business.

The Business Plan

An offshore bank requires a very detailed business plan. The business plan is the heart of the license application and should include audited financials from the parent company or accounting and tax records from the beneficial owners.

The plan should also include 3 to 5 years of projections broken down by business unit. These projections should cover use of funds, risk and liquidity ratios, reserves, break-even analysis, etc. across all divisions of the bank.

The bottom line is that the business plan must convince the regulator that the applicant is of fine character, has the requisite experience, has a well thought out and funded plan, and understand the risks and compliance requirements of operating an offshore bank.

Each of the next 7 components of a startup offshore bank must be described in great detail in the business plan. Again, remember that the business plan must convince the regulators, auditors, and licensing board that you and your team are qualified to operate a bank and won’t cause trouble for the jurisdiction.

The Capital

All offshore bank licensed require a minimum amount of capital to comply with the statute. In Dominica, the required capital is $1 million on deposit in the government bank. In Puerto Rico it’s $250,000 of paid in capital plus $300,000 on deposit with the government.

Those two jurisdictions typically issue licenses with the minimum amount of capital under the law. Other countries require much more cash. For example, Belize law allows for a license with $1 million, but experience tells me that you’ll need $3 million to $5 million to get an offshore banking license.

Then there are the larger jurisdictions that negotiate capital on a case by case basis. For example, a subsidiary of a bank from a major jurisdiction can get an offshore license in Panama with around $5 million in capital. If you don’t have a major license already, then you’ll need a Class A license from Panama and about $25 million in capital.

When selecting the best jurisdiction, you should first consider the capital required. This will usually narrow down your search significantly. But, as you can see, knowing the capital requires experience and not just a review of the law as written.

The People

Your business plan should include the resumes of your key personnel and your board of directors. Both of these groups must have extensive experience in banking. Presumably your management and employees will be locals (residents of the country where you get your license).

It’s also important that your board of directors include one or two locals. The licensing authority will look upon your team more favorably if it includes professionals with a solid track record in your country of license. These board members should have experience in banking law and/or compliance.

At a minimum, you’ll want to handle account openings, KYC and AML, correspondent banking, and compliance in the same country that issued your license. Many banks in small jurisdictions put support and trading / investment management in larger countries such as Switzerland or Panama.

Thus, your country of license should be large enough provide a sufficient number of quality employees. While Dominica and St. Vincent might be fine for banks with 4 or 5 employees, there’s no way to build a staff of 200 there.

Puerto Rico is a country of 3 million and any US citizen can move to the island and work legally. No matter the size of the business, you’ll find quality employees on the island… and, if you can’t find them, you can import them.

The largest offshore bank on the island has over 400 employees and the next has about 180. The banks in Puerto Rico are larger than all of the competitors in the Caribbean combined excluding Cayman. I expect Puerto Rico to surpass Cayman in two years.

Where your staff is located will play a major role in determining the tax costs of your bank. See Tax Considerations below.

The Computer Systems

The foundation of your operation will be the computer system. The IT system for an offshore bank will handle KYC and AML, compliance, background checks, account openings, transfer, document management, etc. All of these modules will be looked at carefully by the government regulators before they allow you to “go live” with the business.

The core system and compliance modules are typically the largest startup cost for a new offshore bank. Most clients spend $100,000 to $1 million on their IT system. The largest quote I’ve seen in 2017 was from Terminos for $3.5 million.

A typical IT implementation will take 3 to 6 months. Once the provisional license is granted, the IT system will be what will delays your launch. Get to work on this while you’re building your business plan and you’ll get to market much quicker.

The Compliance Systems

The compliance system will be built around your IT system. From there, you can build an in-house team or outsource compliance monitoring to a local law firm.

Basically, all the operational risk of an offshore bank comes from a possible failure of your compliance program. If you run afoul of the money laundering rules, know your client requirements, or FATCA / OCEF reporting, you’ll be fined and shut down faster than you can blink. Either your licensing board will get you or your correspondent partner will kick you out of the system.

No matter your jurisdiction, government regulators will watch your compliance program very carefully. Any error will be dealt with swiftly and without a second chance.

The reason regulators monitor compliance so carefully is that a major error by one bank can bring down the entire country’s banking system. For example, back in 2015, Bank of Belize was shut down by US regulators. As a result, all of the banks in Belize lost their correspondent partners because none of these banks wanted anything to do with Belize. The entire system was tainted by one allegation against one offshore bank.

It took months for these banks caught in the crossfire to get new banking partners. To this day, it’s very difficult for a Belize bank to find a correspondent partner. See: Belize Banks Under Attack by US Government.

For these reasons, your business plan must explain your compliance program and procedures in great detail. Also, your employees and board of directors must have significant compliance experience.

Once your preliminary license is granted, building a solid compliance program will be your first priority. All processes and procedures must be in place, and everyone trained in the IT system, before you board even one client.

The License

Regardless of what their law says, very few counties will grant international banking licenses to startup banks. For example, Panama and Cayman will only issue offshore licenses to banks that already have a license from a major jurisdiction.

If you have a license from the US or Germany, you can easily get a license in Cayman Islands. Cayman’s reasoning is that your bank is already highly regulated in your home country, so their regulators don’t need to worry about you too much.

If you have an existing license, you can get an offshore license from Panama with $5 million. If you want to start a new bank in Panama, you can form a Class A bank with $25 million in capital.

The most active jurisdictions for offshore bank licenses are Puerto Rico and Dominica. For a comparison of these two options, see: Best Offshore Bank License Jurisdictions in 2017

Of course, there are others in Europe and less active jurisdictions in the Caribbean. I would avoid African nations and Vanuatu. You’ll never get a correspondent account from those countries.

Once you’ve selected your jurisdiction and prepared your business plan, you can apply for your preliminary license.

Preliminary Offshore Bank License: The preliminary license, sometimes referred to as your “permit to organize,” allows you to incorporate a company using the word “Bank” in the name. It also allows you you to hire employees, buy your IT system, and do all of those things necessary to begin to operate the business.

Once your systems and people are in place, you send notice to the regulator that you’re ready to launch. The government will audit your systems and procedures. If they pass, you’ll receive your offshore bank license or permit to operate.

Offshore Bank License: The second step in the licensing process is to take the bank live and begin to board on clients. The operational license will require you provide audited statements to the regulator each quarter. Now is the time to hire an outside auditor.

The Correspondent Account

The life blood of an offshore bank is its correspondent account. The correspondent account allows you to hold money and transact through the facilities of a larger bank. Ask any experienced offshore banker what’s the most important component of their business and every one will answer, “the correspondent account, obviously!”

For example, if a bank in Dominica want’s to hold accounts in US dollars, they need a US correspondent banking partner. The US partner has US Fedwire capabilities and is authorized to transact in US dollars.

Likewise, if you want to hold accounts in Swiss Francs, you need a Swiss correspondent bank. An offshore bank will need a separate correspondent account for each currency it wishes to hold.

And its the correspondent account that will require the most capital. While you can negotiate a license from Dominica with $1 million, no USD correspondent will open an account with that small of a deposit. I doubt you can get a correspondent account with less than $5 million… and $12 million is the preferred size.

These accounts are also the bane of the offshore banking industry. Any slip in compliance, or attention from the US government, can mean the loss of your correspondent account. When that happens, your bank is basically out of business and unable to send and receive funds.

The exception to the correspondent account dilemma is a license from Puerto Rico. As a bank licensed in a US territory, a bank in Puerto Rico has an easier time setting up and maintaining a US correspondent partner.

Also, if the bank so desires, it can apply to the Federal Reserve for a primary account. In that case, a Puerto Rico bank would eliminate the need for a USD correspondent account. In fact, such a bank structured in Puerto Rico could offer correspondent services to other offshore banks.

I’m not saying Puerto Rico is always the best solution. If you don’t mind being subject to US anti-money laundering rules, Puerto Rico is great. If you want to do business without US oversight, then Dominica or elsewhere might be better.

I caution you from jumping to conclusions in this regard. Always remember that your US correspondent bank will require you to comply with all US regulations. If you want to be completely free of US compliance costs, you must get a license from a very small offshore jurisdiction and not hold US dollars or transact n US dollars. Only then will you avoid US correspondent banking issues.

Tax Considerations

Most offshore banking jurisdictions won’t tax the your corporate profits. Instead, they charge a large annual license fee. For example, Cayman charges $85,000 per year to maintain an international banking license.

In contrast, Puerto Rico charges a 4% rate on corporate profits and a $5,000 annual fee.

The tax benefits of operating an offshore bank are substantial. But you’ll need a solid tax plan to maximize the value of these tax deals.

Let’s say you set up a bank in Dominica and hire 3 people on the island. Then you open office in the UK and hire 23 people. Obviously, most of the work to generate customers and income is coming from the UK while Dominica is just the licensing jurisdiction with a few people doing menial tasks.

In that case, the UK will want to tax the majority of your income at 21%, leaving only a small fraction tax free in Dominica.

The same goes for Puerto Rico. Let’s say you have 5 employees on the island, which is the minimum allowed under the law. Then you open an office in Florida with 50 employees.

The US government will want to tax the income generated by the Florida workers at 35%, leaving a small bit left over for Puerto Rico to tax at 4%.

Your global tax plan is important during the startup phase because you want to maximize income in the low tax jurisdiction and minimize income in high tax countries. Thus, when you select your country of licensure, it must be one large enough to provide a sufficient number of quality employees and allow for growth in coming years.

If you all you require is 5 to 10 employees, and don’t plan to grow much past this number, a license from Dominica, St. Vincent, St. Lucia, or elsewhere is fine. If you’ll need 50 employees, you’ll need to look to a larger jurisdiction such as Puerto Rico.

If you do incorporate in Dominica, you might also consider a Panama Financial Services License. This will allow you to hire employees to manage your bank remotely and maintain your tax free status.

Conclusion

I hope you’ve found this article on the 8 components of an offshore bank license to be helpful. For assistance in licensing and building an offshore bank in Dominica, Puerto Rico, or elsewhere, or in negotiating a correspondent account for an existing bank, please contact me at info@premieroffshore.com or call us at (619) 483-1708. Our team has over 100 combined years of experience in offshore banking and we’ll be happy to help you structure your bank.

Low Cost Foreign Residency from China

05/16/2017/0 Comments/in Articles, Second Passport, Second Residency/by Christian Reeves

The demand for second passports and foreign residency is strong from China. The vast majority of US EB-5 foreign residency visas are issued to Chinese nationals and Chinese are very active in other countries as well.

For example, the first billionaire in the Caribbean was Wu Xu of China. He’s worth $1.9 billion and obtained his foreign residency and a second passport from St. Kitts in 2016. Mr. Xu is now the second wealthiest Caribbean citizen because Jacky Xu, a 32-year-old Singaporean-born business man, with a net worth of $3 billion, became a citizen of St. Kitts in early 2017.

A passport from St. Kitts will cost a person from China about $300,000. However, I do not recommend this program for anyone in 2017 (even billionaires). For the reasons why, see: St. Kitts Passport Program Crashes and Burns.

A better option is St. Lucia with an investment of $500,000 in government bonds or Dominica with a purchase price of around $140,000 (including fees) for Chinese nationals. In my opinion, Dominica is the best value in the Caribbean.

The US program that’s most popular with Chinese investors is the EB-5 Investor’s Visa. If you invest $500,000 to $1 million, you get a green card immediately and are guaranteed a US passport after 5 years of residency.

The State Department says Chinese investors poured in $3.8 billion in the fiscal year that ended Sept. 30–approximately 85 percent of the EB-5 investment total, Bloomberg reported.

The EB-5 program is being evaluated by the Trump administration. Most expect the investment amount to increase from $1 million to $1.8 million and the targeted employment area minimum from $500,000 to $1.35 million. For more, see: Wealthy Chinese Moving Money To US Before Congress Hikes Visa Minimum.

If you’re not a Chinese billionaire, what are your choices? Here is the only low cost foreign residency open to Chinese nationals.

Chinese citizens can get foreign residency in Nicaragua with an investment of $35,000 plus legal and other fees. Then, like the US EB-5 program, you can file for citizenship and a second passport after 5 years.

If you have $500,000 to $1.8 million, you can get a US passport after 5 years of residency. With $35,000, you can achieve the same in Nicaragua.

And a passport from Nicaragua is a solid travel document. Nicaraguans had visa-free or visa on arrival access to 112 countries and territories in 2017.

For comparison, holders of a Chinese passport have visa free access to 51 countries and territories, ranking the Chinese passport 85th in the world (tied with the Bhutanese, Chadian, Malian and Rwandan passports).

Nicaragua is the best deal for Chinese nationals because their passport provides access to the Schengen Region of the European Union. Passports with visa free access to the EU sell for $130,000 or more… and that’s the purchase price and not an investment. To get a passport of this quality with a $35,000 investment is an amazing opportunity.

For more on how to value a passport, see: How to Value a Second Passport.

Keep in mind that I’m talking about how to get residency in Nicaragua from China. Residency allows you to live and run a business from Nica. Then, after 5 years, you can apply for citizenship. This is quite different from the passports for purchase programs described above (Dominica, St. Kitts, etc). If you have the cash, you can buy a passport and have it in your hands in about 90 days.

If you don’t have $130,000 burning a hole in your pocket, you can earn a second passport by moving to Nicaragua and becoming part of the community. You will need to spend at least 180 days a year in the country during your 5 years of residency. Once you have your passport, you can spend as much or as little time in Nica as you wish.

Remember, you can buy a passport with cash or earn it by living in the country. The government hopes you’ll become part of the community, spend money, maybe start a business and hire employees, etc.

For more information on how to become a resident of Nicaragua as a Chinese citizen, please contact us at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to assist you to become a productive member of the community.

IRS Offshore Voluntary Disclosure Program for 2017

05/14/2017/0 Comments/in Articles, Offshore Bank Accounts, Taxation/by Christian Reeves

The IRS Offshore Voluntary Disclosure Program for 2017 offers taxpayers with undisclosed offshore accounts the ability to come forward voluntarily, file their returns, disclose their assets, pay the resulting taxes and penalties, and receive a clean slate. This article covers amendments to the Offshore Voluntary Disclosure Program through February 9, 2017.

As of 2017, the IRS Offshore Voluntary Disclosure Program has collected about $8 billion in taxes and penalties from US persons with undisclosed offshore accounts. The last official number reported by the Service was $6.5 billion taken from 45,000 taxpayers as of June 2014. Unofficial estimates put it at $8 billion today.

The OVDP first came out in 2009 when the IRS was putting pressure on the Swiss bank UBS to turn over account records of US citizens. The IRS claimed that UBS was illegally helping US citizens to hide money from the tax man.

When the dust settled, UBS bowed to the US government. The bank agreed on February 18, 2009 to pay a fine of US$780 million to the U.S. government. This ransom payment broke the back of Swiss privacy and lead to the situation we have today where US persons have zero right to privacy in their financial dealings.

The IRS Offshore Voluntary Disclosure Program allows taxpayers with undisclosed accounts to avoid criminal prosecution and to “come into the fold” as it were. The OVDP is designed for US persons who voluntarily report their foreign accounts and avoid the draconian penalties the IRS will impose if they catch you.

A “US person” is any US citizen, green card holder, and resident of the US. The definition can include anyone who spends more than 183 days a year in the US and doesn’t usually include non-resident aliens, but exceptions apply.

For a detailed list of penalties and charges you can face if you’re caught with an offshore account, and don’t voluntarily come forward, see FAQs 5 and 6 here.

Before I get into the terms of the IRS Offshore Voluntary Disclosure Program for 2017, note that this program is sometimes referred to the 2012 OVDP or 2014 OVDI. The last major changes to the program came in July 1, 2014. There have been several comments and clarifications from that date to February 9, 2017. This article was written in May of 2017.

The following applies to US persons with undisclosed foreign bank accounts. You were required to report any bank or brokerage account(s) outside of the US with more than $10,000.

This is the combined balance of all your foreign accounts. For example, if you had $6,000 in an account in France and $6,000 in an account in Switzerland, your combined balance was $12,000 and you had a filing obligation.

This filing requirement is based on the highest balance in the foreign account for any one day of the year. It’s not your average balance during the year or year-end balance.

Let’s say you were buying an apartment in Belize for $200,000 in 2015. You opened a bank account on the island and transferred the purchase money to that account. One day later you wired the $200,000 out of your Belize account and into an escrow account. You had a reporting requirement for 2015 because you had more than $10,000 offshore for that one day.

If you’d sent the money directly from a US account into an escrow account, you would not have a US reporting obligation. This is because an escrow account is not in your name and not under your control.

That is to say, you are required to report any offshore account in your name or under your control. Having a nominee on the account doesn’t eliminate the filing requirement because you still maintain control.

The focus of the IRS Offshore Voluntary Disclosure Program has been offshore bank accounts. There are many other filing deficiencies can be cured through the OVDP. For example, you should be filing Form 5471 if you hold shares in an offshore company. Then there’s Forms 3520 and 3520-A for foreign trust and Form 8938, Statement of Foreign Financial Assets.

Bottom line, if you had an interest in a foreign bank account or structure, you probably had a US filing requirement and should consider the IRS OVDP.

IRS Offshore Voluntary Disclosure Program for 2017 Settlement Terms

There are two flavors of the IRS OVDP, the Streamlined Offshore Voluntary Disclosure Program and the Traditional Offshore Voluntary Disclosure Program. Clients with a low risk of criminal prosecution, and a valid cause for their failure to report and pay, will usually select the streamline option.

Those who are coming forward after their foreign bank entered into an agreement with the IRS, or who’se financial advisor made a deal to turn over their client list, will need to go with the more expensive traditional program. Likewise, those with no valid cause for the account, or who took steps to hide the account from the IRS, should go with the traditional program.

Traditional Offshore Voluntary Disclosure Program

The penalties under the traditional OVDP are as follows:

A 20-percent accuracy-related penalty on the tax due with the filing of your amended returns for all years. If no tax is due with the filing, then no accuracy penalty will apply;
Pay failure-to-file and failure-to-pay penalties, if applicable; and
Pay, in lieu of all other penalties 27.5% of the highest aggregate value of your foreign assets during the period covered by the voluntary disclosure.

If your bank is under investigation, a 50% penalty might apply rather than the 27.5% above. Remember that the purpose of the program is to convince Americans to come forward voluntarily. If the IRS believes they’d have caught you eventually without the disclosure, they’re going to hit you hard.

The 27.5% penalty applies to all foreign assets which you failed to disclose. If all you had offshore was a bank account, the penalty is based on the highest value of the account during the OVDI period.

In my example above, a client had an offshore bank account that held $200,000 for only one day. In that case, the standard OVDI penalty is 27.5% of $200,000, or $55,000.

If you have other reportable assets, such as foreign real estate, an offshore trust, and a brokerage account, the penalty can apply to the highest value of these assets combined plus the highest value of your offshore bank account.

The OVDP penalty is often assessed on the highest value from a few years back because that’s when you were making money offshore. Since that high-water mark, the brokerage account may lost money, the bank accounts depleted, and the real estate has gone to foreclosure… I even had a client that had all his money stolen by an offshore scammer. None of these losses matter. The penalty is on the highest value and later losses are disregarded.

See FAQ 8 and 31 through 41 on the IRS website for more details on how to calculate the standard penalty.

Streamlined Offshore Voluntary Disclosure Program

The streamlined filing compliance program is available to those who can certify that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. You must state, and should be able to prove, that you didn’t intend to use the offshore account to avoid paying your taxes.

That is to say, you must state under penalty of perjury that your conduct was not willful. That the failure to report all income, pay all tax and submit all required information returns, including FBARs was due to non-willful conduct.

Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

The risk with the streamlined program is that the IRS doesn’t buy your claim of non-willfulness. If they have evidence that you intended to hide money from the Service, or that you lied on the streamlined application, they will come after you with guns blazing.

The reduced penalties under the streamlined OVDP are as follows:

For US persons living in the United States:

File original or amended tax returns, together with all required information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) for the last years properly reporting your offshore accounts, assets, and income,
File original or amended FBARs for the last 6 years, and
Pay the tax, interest, and a miscellaneous 5% penalty with the filing of your OVIP.

The streamlined penalty for US residents is equal to 5% of the highest aggregate balance/value of your reportable foreign financial assets. For this purpose, the highest aggregate balance/value is the highest year-end balance… which might not be the highest balance for the year.

In our example above, you had $200,000 in an offshore account for one day. Assuming that wasn’t December 31, you’re streamlined penalty won’t include that deposit.

A foreign financial asset is any asset that should have been reported on the FBAR (FinCEN Form 114) or Form 8938. The most common examples of foreign financial assets include:

Bank and brokerage accounts held at foreign financial institutions;
Bank and brokerage accounts held at a foreign branch of a U.S. financial institution;
foreign stock or securities not held in a financial account;
foreign mutual funds; and
foreign hedge funds and foreign private equity funds.

Note that the streamlined OVDP penalty applies to foreign financial assets while the traditional OVDP applies to all foreign assets.

If you’re eligible for the Streamlined Domestic Offshore Voluntary Disclosure Program, you can avoid accuracy-related penalties, information return penalties, and FBAR penalties. In most cases, the 5% miscellaneous penalty will be the only penalty assessed.

For US persons living abroad:

If both you and your spouse are non-residents for US tax purposes, you might be eligible for the zero penalty version of the streamlined program. If you’re living abroad, and otherwise qualify for the Streamlined Foreign Offshore Voluntary Disclosure Program, the IRS will allow you to file or amend your returns without the 5% penalty.

Keep in mind that your failure to file or pay taxes must have been non-willful. This criteria is the same for both domestic and foreign filers.

You’re a US citizen “living abroad” for the streamlined OVDP if you were out of the United States for 330 days for one of the last three tax years. If you’re OVDP filing covers tax years 2014, 2015 and 2016 (it is now 2017), then you must have been out of the country for 330 days during one of those years.

If you qualify for the foreign streamlined OVDP, you must submit your last 3 years of returns, 6 years of FBARs, and pay any tax and interest at the time of filing.

The purpose of the foreign streamlined program is to allow American’s living abroad to get back into the system without a penalty. The IRS has determined that, on balance, US persons who are out of the US for 330 days, and thus have few ties to this country, are the most innocent when it comes to their failure to file and pay taxes.

And, when you take the Foreign Earned Income Exclusion and the Foreign Tax Credit into account, most American’s living abroad pay little or no US taxes on their income. In that case, you will pay little to nothing with your foreign streamlined OVDP.

A US citizen who is a resident of a foreign country, or is out of the US for 330 days during any 365 day period, qualifies for the Foreign Earned Income Exclusion. The FEIE allows you to earn about $100,000 in salary or business income free of Federal income taxes. For more on the FEIE, see: Foreign Earned Income Exclusion for 2017

You also get to deduct any foreign taxes paid on your US returns, even when those returns are filed as part of an OVDP. You essentially get a dollar for dollar credit against any taxes paid on your US return.

So, if you’re living in a country with a tax rate equal to or higher than the United States, you shouldn’t owe any US tax on your foreign income. In that case, you’ll pay nothing with your foreign streamlined OVDP.

If you’re living in a zero or no tax country, or aren’t required to pay local tax to your country of residence, then you’ll pay some US tax with your OVDP. If your salary exceeded the FEIE, you will owe US tax on the excess. If you have capital gains, they’ll will be taxable when you file or amend your US returns.

Conclusion

The IRS Offshore Voluntary Disclosure Program for 2017 allows US persons to come out from the cold and get back into the good graces of the US government. No matter the reason for your failure to file, and I’ve heard them all, the OVDP is your best path forward

I hope you’ve found this article on the OVDP for 2017 to be helpful. For more information, please contact us at info@premieroffshore.com or call (619) 483-1708. We’ll be happy to assist you to file a streamlined or traditional Offshore Voluntary Disclosure and negotiate the best settlement available.

Foreign Base Company Income

05/05/2017/0 Comments/in Articles, International Business, Offshore Company, Offshore Company Taxation/by Christian Reeves

When a foreign company is owned by a US person or persons, it’s a Controlled Foreign Corporation (CFC) for US tax purposes. Even if a CFC is operated abroad, some types of income will be taxable in the US as earned. The most common category of taxable income in a CFC is Foreign Base Company Income.

A company with Foreign Base Company Income is owned by “US persons” if residents, green card holders, or citizens of the United States own more than 50% of the company. US persons also includes domestic partnerships, domestic corporations, and certain estates and trusts (IRC § 951).

For purposes of determining who is a US shareholder and CFC status, stock owned directly, indirectly, and constructively is taken into account (IRC § 957). These are called the “look through” rules and prevent you from avoiding CFC status by giving shares to family or putting them in offshore structures and trusts.

Being a CFC means that your foreign company needs to consider Subpart F of the US tax code. As a result, certain types of income of this corporation may be taxable as earned in the United States. Conversely, most income that is not Subpart F income can be retained tax deferred in the corporation.

The most common type of Subpart F income is referred to as Foreign Base Company Income. This category includes 4 subcategories:

Foreign personal holding company income;
Foreign Base company sales income;
Foreign base company service income;
Foreign base company oil-related income.

Foreign base company taxable income consists of the sum of these 4 types of profits earned in a foreign corporation which is owned or controlled by US persons.

I will consider foreign personal holding company income and foreign base company services income here, as those are the categories relevant to my clients. For sales income, you might review IRC § 954(a)(2). For oil-related income, see IRC § 954(a)(5) or contact Secretary of State Rex Tillerson, ℅ US State Department.

Foreign Personal Holding Company Income

Foreign personal holding company income is basically your net passive income earned in a CFC. It’s “net” after foreign taxes paid (subject to treaties), your basis, and allowed expenses. Foreign personal holding company income typically includes the following:

Dividends, interest, royalties, rents, and annuities;
Net gains from certain property transactions;
Net gains from certain commodities transactions;
Certain foreign currency gains;
Income equivalent to interest;
Income from notional principal contracts;
Certain payments in lieu of dividends; and
Amounts received under certain personal service contracts.

The purpose of the personal holding company income rules as to prevent US persons from deferring tax on passive income on portfolio type investments. An active business can defer foreign source income, but an individual can’t typically structure their passive investments offshore and receive the same benefit.

Foreign Base Company Service Income

Foreign base company service rules target service income earned abroad from related companies in the United States. This is usually income earned from the performance of technical, managerial, engineering, architectural, scientific, skilled, industrial, commercial, or other services.

Income earned by a CFC is considered foreign base company service income only if it meets all three of the following criteria:

The income is earned in connection with the performance by the CFC of certain specified services;
The services are performed by the CFC for, or on behalf of, a related person; and
The services are performed outside of the country in which the CFC is incorporated.

This all means that, when a CFC performs services for a related party through a branch established outside of its country of incorporation, it may incur “foreign base company services income” that may be currently included in its US shareholder’s gross income under Section 951.

Services will be considered performed wherever the worker performs their duties. If you’re a consultant flying from country to country performing a technical task, you probably have foreign base company service income.

Likewise, if you’re a technical professional working in Mexico and operating your business through a Panama corporation to save on Mexican taxes, you probably have foreign base company service income issues.

The solution to this for those who do not travel is to incorporate in the country where you’re working. If you want the benefits of a low tax country such as Panama, you need to be living in and working from Panama.

If you do travel, or don’t wish to incorporate in your country of operation, then a foreign corporation owned by US persons may only provide services to unrelated persons. That is, the company should be performing services for customers on behalf of itself and enter into contracts with those customers directly, not through a related party.

As stated above, only services performed for related parties, and services performed outside of your country of incorporation, generates foreign base company service income. Services are performed for or on behalf of a related party in the following situations:

The related person pays the controlled foreign corporation for the services;
The related person is or was obligated to perform the services performed by the controlled foreign corporation,
The performance of the services that were performed by the controlled foreign corporation was a condition or material term of a sale of property by a related person, or
The related person contributed “substantial assistance” in the performance of the services by the controlled foreign corporation.

If you wish to retain earnings offshore, you must avoid Subpart F, the foreign base company service income and foreign personal holding company issues. The key to a successful offshore plan is to maximize tax deferral in a compliant manner.

I will end by pointing out that foreign base company service income issues are not a concern for small businesses, only those looking to hold retained income offshore. If you’re a small business owner, you live and work abroad, net $100,000 or less, and qualify for the Foreign Earned Income Exclusion, then you don’t need to worry about Base Company isuses.

This is because a small business owner can take out up to $102,100 as salary tax free using the Foreign Earned Income Exclusion. You never want to retain earnings when you can distribute them as earned tax free using the FEIE.

I hope this article on foreign base company income has been helpful. For more information on structuring an active business abroad, please contact us at info@premieroffshore.com or call us at (619) 483-1708.

A Conversation with Joel Nagel on Second Passports

04/17/2017/0 Comments/in Articles, Asset Protection, Second Passport/by Christian Reeves

Today I bring you an interview with Joel Nagel, one of the original founders of the second passport industry and is still the go-to guy on European and high value passports. Joel Nagel is a U.S. attorney who has specialized in second passports and international business since 1990. He’s also someone I’ve known and respected for over 12 years now. When I have a question on second passports, I call Joel Nagel.

As you can imagine from this fancy title, Joel Nagel has unique access and experience in Austrian second passport programs as well as those of his neighbors (such as Malta). Austria is the gold standard in second passports and Malta is one of the best available within the Schengen region.

For this reason, I met with Joel to get his thoughts on the second citizenship industry.

Conversation with Joel Nagel

Christian Reeves: Welcome Joel, thanks for being with us today. Second passports & economic citizenship has become big business. What do you think about the industry you helped create so many years back?

Joel Nagel: Thank you for having me Christian and good to see you again. You may be surprised to hear this, but I think the second passport industry has grown to fast and that some programs are out of control.

For example, the tiny nation of St. Kitts, with about 51,000 residents, has sold many thousands of second citizenships to anyone and everyone who could pay the fee.

The St. Kitts second passport program brought in $74 million in 2013 alone and accounted for about one third of the island’s total revenue. IMF forecasts suggest that the country has sold about $37 million passports per year from 2015-2017.

Numbers like this diminish the value of the St. Kitts second passport in particular and the second passport industry as a whole. In our industry, attention and front page news is a bad thing.

If you are considering a second citizenship, I suggest you look to a more discerning country. One whose passport will hold its value over time.

Christian Reeves: Which country do you recommend as the best second passport if money’s no object?

Joel Nagel: While a second passport from Austria gives you the best travel document (most visa free countries), I think that the Malta passport offer is the best available.

I like the fact that you can invest in real estate, bonds, etc. rather than into a business. Of course, if you want to start a business with employees, then that’s great. If you want to get a solid EU passport without having the headaches of operating a business, go with Malta.

For your information, a second passport from Malta requires three investments:

First, you need to donate €650,000 to the government. Dependents are additional.
Second, you must buy a home for at least €350,000 or enter a rental contract for at least €16,000 per year. You must maintain the home or keep the rental for a minimum of 5 years. Once that 5 year holding period has passed, you can sell the home tax free.
Third, you invest at least €150,000 in government bonds and hold those bonds for 5 years.

Do all of those things and you will get citizenship in the European Union.

Christian Reeves: Which second passport do you think is the best value right now?

Joel Nagel: That’s a difficult question because it depends on where you want to live. For example, if you want to be in the European Union, and can’t afford Malta, then go with Bulgaria.

A second passport from Bulgaria can be had with an investment of $1.2 million in government bonds. You get your investment back after 5 years with no “donation” required.

In the Caribbean, I suggest you avoid the volume sellers and look for something more discreet. For this reason, I like the St. Lucia second passport program. This island is new to the game and are very careful in their approval process.

Another reason I like St. Lucia is that you have the option of paying a fee (about $250,000) or making an investment of $500,000 to $550,000 in government bonds. If you go the investment route, you will get your capital back in 5 years.

For your information, the same group that wrote the Bulgarian statute wrote the law in St. Lucia. The major difference is that you must wait a year to get a second passport in Bulgaria, but you get one immediately in St. Lucia. And, of course, St. Lucia is half the investment of Bulgaria.

Christian Reeves: What about getting a second passport from the US? How difficult is it for someone from abroad to join team America?

Joel Nagel: Getting a second passport from the US is far easier than one might think. In fact, you can get US citizenship for about half the cost of Austria. So long as you have the cash, Uncle Sam is happy to have you.

For example, the US EB-5 investor visa gets you an immediate green card and US citizenship within 5 years. To qualify, you must operate a business in the US with at least 10 employees. The investment required varies from $500,000 to $1 million, much lower than the EUR 3 to 10 million required in Austria.

The catch with the US is that all green card holders and citizens are taxed on their worldwide income. Most other second passport countries won’t tax your income unless you are living and operating a business in their territory.

If, as you say, one wants to join team America, get ready to pay the US on every dollar you make anywhere in world. Even if you move out of the US, so long as you hold a US passport, you will pay US tax. The only exception is in the US territory of Puerto Rico, but I’ll leave that for another day.

Editor’s Note: For more on how to get the EB-5 visa without paying taxes to the US, see our post on Coming to America Tax Free with the EB-5 Visa and Puerto Rico

Conclusion:

I hope you have enjoyed this transcript of a conversation with Joel Nagel. For more information on how to get a second passport from Malta, Bulgaria, or St. Lucia, or on the US EB-5 program, please contact us at info@premieroffshore.com. I will answer your questions and get you connected with Joel.

For more on this topic, see my post Top 10 Second Passports

international financial entities in puerto rico

International Financial Entities Licenses in Puerto Rico

04/14/2017/0 Comments/in Articles, Banking Offshore, International Business, Offshore Bank License, Puerto Rico Tax Incentives/by Christian Reeves

An International Financial Entities licensed in Puerto Rico under Act 273 is one of the most powerful international banking and financial services structures available. As the rules continue to tighten around offshore transactions, offshore tax benefits are reduced under President Trump, and the US increases FATCA and other regulations, expect more financial services companies to move to an International Financial Entities license in Puerto Rico.

This International Financial Entities in Puerto Rico can offer all manner of international banking, brokerage, investment management, and financial services from Puerto Rico to clients outside of Puerto Rico. Below I will detail all of the services which may be provided by this structure.

In order to qualify as an IFE in Puerto Rico under Act 273, you must hire 4 employees on the island (I usually advise clients hire 5). Then you set up an office, submit a very detailed business plan to the banking regulator, and negotiate the terms of your license.

Once approved, you will be eligible for a 20 year tax holiday on all income earned by your International Financial Entity in Puerto Rico. You will pay a 4% tax rate on all corporate profits earned by the business.

That is to say, the corporate tax rate on Puerto Rico sourced income in your IFE will be 4%.

You will also get full property and municipal licenses tax exemptions and a 6% income tax rate on distributions to PR residents. Dividends to non-PR residents will be tax free. Likewise, dividends paid to residents of Puerto Rico who qualify under Act 22 are tax free to the IFE and to the receiving party.

An IFE in Puerto Rico must be capitalized with a minimum of $550,000. Of this, $300,000 is placed on deposit with a local bank as a surety. The balance of $250,000 is your minimum corporate capital. Total authorized shares of your International Financial Entities in Puerto Rico must be $5 million (but only $250,000 of this is paid-in).

The largest firms structured under Act 273 as a International Financial Entities in Puerto Rico are international banks. For an article on this topic, see: Lowest Cost Offshore Bank License is Puerto Rico

The IFE license not limited to international banks. Family offices, insurance companies, investment advisors, hedge fund operators, currency traders, and others all operate under Act 273 as an International Financial Entities in Puerto Rico. For this reason, Act 273 is the most powerful financial services license available today.

Here’s a list of the services an Act 273 International Financial Entity licensed in Puerto Rico can offer:

Accept deposits, including demand deposits and interbank deposits (or otherwise borrow from banks outside of PR and other IFEs)

Place deposits with banks outside of PR and other IFEs.

Make, procure, place, guarantee, syndicate, or service loans.

Issue, confirm, give notice, negotiate or refinance letters of credit provided both the client and the beneficiary requesting the letter of credit are not residents of Puerto Rico.

Discount, rediscount, deal or otherwise trade in money orders, bills of exchange, and similar instruments, provided that neither side of the transaction is a resident of Puerto Rico.

Engage in any banking transaction permitted by Act 273 in the currency of any country, or in gold or silver, and participate in foreign currency trades.

Underwrite, distribute, and otherwise trade in securities, notes, debt instruments, drafts and bills of exchange issued by a firm outside of Puerto Rico and purchased by a client of the IFE who is not a PR resident.

Engage in any activity of a financial nature outside of Puerto Rico which would be permissible for a bank licensed in the United States.

If the International Financial Entity licensed in Puerto Rico gets an additional license, it may act as a fiduciary, executor, administrator, registrar of stocks and bonds, property custodian, assignee, trustee, attorney-in-fact, agent, or in any other fiduciary capacity.

Acquire and lease personal property.

Buy and sell securities outside of Puerto Rico.

Provide investment advice to persons outside of Puerto Rico.

Act as a clearinghouse in relation to financial contracts or instruments of persons who are not residents of Puerto Rico.

Organize, manage, and provide management services to international financial entities such as investment companies and mutual funds. This is the section of the law used by hedge funds to manage master / feeder structures set up in Cayman with feeders in the US and Cayman.

Dedicate itself to provide the following Services:

Asset management,
Management of activities related to the investment of private capital,
Management of hedge funds and high-risk funds,
Management of pools of capital,
Administration of trusts utilized for converting different types of assets into securities (such as REITs),
Management of Escrowed fund for persons who are not residents of Puerto Rico.

Engage in any other activities approved by the Commissioner.

With the Commissioner’s prior approval, establish branches outside of Puerto Rico. This includes the United States and foreign countries.

Section 15 above is commonly used by family offices. The clause “dedicated to” means you may only engage in these activities and will thereby be subject to reduced compliance.

For more on operating an investment fund from Puerto Rico, see: How to operate an investment fund tax free from Puerto Rico

Note that an International Financial Entities in Puerto Rico is prohibited from doing business with persons or businesses in Puerto Rico. Therefore, all of the above are limited to persons outside of Puerto Rico. An Act 273 IFE can do business with Puerto Rico’s Development Bank and its Economic Development Bank.

I hope you’ve found this article on the International Financial Entities of Puerto Rico licensed under Act 273 to be helpful. For more information on setting up an IFE in Puerto Rico, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

You might also find my articles Puerto Rico’s Act 20 to be helpful, as well as a comparison between offshore tax planning and Act 20.

For more on Puerto Rico’s Act 273 vs a traditional offshore banking license, see: Top 5 Offshore Bank License Jurisdictions for 2017. For my post on the offshore FinTech, see: Offshore FinTech Bank License.

For more of my articles on the offshore bank licensing and operations, see:

Top 5 Offshore Bank Licenses for 2017
Lowest Cost Offshore Bank License is Puerto Rico
Offshore Bank Advertising Rules (a review of Reg. S)
Offshore Banking Licenses (on lowtax.net)
Capital Reserve Requirements (on lowtax.net)
Correspondent Accounts for Offshore Banks (on escapeartist.com)
Best Offshore Banking Jurisdictions

Here’s how to take your IRA offshore in 6 steps

04/13/2017/0 Comments/in Articles, Banking Offshore, Offshore Bank Accounts, Offshore IRA/by Christian Reeves

In this article I’ll list the steps necessary to take your US retirement account offshore. Whether you’re looking for asset protection, privacy, or investment diversification, here’s how to take your IRA offshore in 6 steps.

Step 1: Determine if your IRA is eligible to go offshore

Before you can move your cash, you must determine which of your retirement accounts are eligible to go offshore. Only accounts that are vested can be moved out of the United States.

A vested account is one that’s under your control. In most cases, an account vests when you leave your employer and take the IRA with you. So, a vested account is typically a retirement account from a previous employer.

It’s possible that a portion of your account with a current employer has vested. If you’ve been working at the same company for 10+ years, you might be able to move a portion of the account offshore. You should speak with HR to see if any of your IRA has vested.

You can also take certain defined benefit plans offshore. If the plan can be converted into an IRA, and in doing so becomes vested, you can move that plan offshore. Eligibility will depend on your defined benefit plan documents. You’ll need to check with your administrator.

Step 2: Move your IRA to a custodian that allows for offshore transfers

Once you know which accounts are eligible to go offshore, you’ll most likely need to move them to a different custodian. Most US firms make money selling you investments. They earn a commission managing your IRA account and don’t want you to move it out from under their control.

There are a few custodians that allow for offshore IRA LLCs. They charge a fixed annual fee of $400 to $600 rather than making money selling investments.

Note that this move must be done as a transfer and not a rollover. If you have multiple accounts, recent changes to the IRS rules make the rollover a problem. However, you can make an unlimited number of transfer of your retirement account (moving it from one custodian to another). Remember that a transfer is not a rollover.

We’ll be happy to introduce you to a custodian that supports offshore accounts.

Step 3: Setup an offshore IRA LLC owned by the IRA

Once you have an account number at your new custodian you can form an offshore IRA LLC. The owner of this account will be your IRA… not you personally and not the custodian.

For example, if your custodian is Midland IRA, the owner of the IRA LLC might be as follows: “Midland IRA, Inc. FBO John Smith #55-5555555” with the number representing your account at Midland. FBO = for the benefit of.

The offshore LLC must be formed in a zero tax jurisdiction, one that allows for single member limited liability companies. The single member of your IRA LLC is your IRA account.

We also focus on countries with strong asset protection laws. For this reason, I like the Cook Islands, Nevis and Belize. The final selection will depend on your banking needs and other factors.

If you’re very concerned about asset protection, you might read the following on using the Cook Islands for maximum protection: Protect Your IRA by Converting it into an Offshore Trust

Step 4: Draft a custom operating agreement establishing you as the manager of the offshore IRA LLC

Now we need to establish you (the beneficial owner of the IRA account) as the manager of the offshore IRA LLC. This is done by drafting a custom operating agreement which lists in great detail your rights and responsibilities.

The bottom line is that you must manage the money in the IRA LLC just as a professional investment advisor would. You should make decisions based on what will maximize returns to the IRA… and those decisions should not benefit you personally.

For example, you can’t borrow from the IRA LLC, can’t use it to buy a home to live in it (even if you pay fair market rent), and can’t use the funds to pay personal expenses

Likewise, you can’t guarantee any of the investments of the IRA. This means you can’t guarantee a loan made to your IRA LLC. All loans taken out by the LLC must be non-recourse secured only by IRA money without a personal guarantee from the beneficial owner.

Step 5: Open an offshore bank account for your IRA LLC

Your IRA is sitting with a custodian that allows for offshore investments, your IRA LLC is incorporated in a secure offshore jurisdiction, and you have a detailed operating agreement giving you control of that LLC. Now it’s time to open an offshore bank account.

The bank selected will depend on the size of the account. If you plan to invest in real estate, and will thus maintain a minimum balance in your offshore account, I recommend Caye Bank in Belize. This bank has high fees but low minimum balances. For more, see: http://www.cayebank.bz/

For accounts of $20,000 and up I recommend Capital Security bank in the Cook Islands (https://www.capitalsecuritybank.com).

Because CSB does not have branches in the U.S., they have a good handle on FATCA, focus on U.S. clients, and offer a wide range of investment options, I often suggest clients plant their first flag offshore with these banks and then open brokerage accounts or diversify from there.
Another benefit of Cook Islands is that you do not need to travel there to open the account. All of the recommendations below require you visit the bank in person.
Finally, CSB is unique in that they don’t lend against client funds. See CSB Low Risk Profile.

In Panama, I recommend Banistmo (https://www.banistmo.com/en), Uni Bank (https://www.unibank.com.pa/en/index.html), and Multibank (https://www.multibank.com.pa/en/default.html). I also suggest Banco General (which is our bank), Santander, Banesco, if you have a local office.

For private vault storage, I recommend Best Safety Boxes in Panama. See http://bestsafetyboxes.com/

For managed accounts over $2m, I recommend Andbanc in Androa or their branch in Panama (http://www.andbanc.com/).

If you prefer a financial advisor and bank in Europe, I recommend Swiss Partners in Geneva. Their website is http://swisspartners-advisors.com. The minimum account size is about $2.5 million.

Step 6: Transfer your IRA cash from the custodian to your offshore bank account

Once you’re account is opened, the custodian will send a wire from their bank to yours. This will move some or all of your cash out of the United States and into an international account that’s under your control.

You can chose to move all or a portion of your IRA offshore. You can leave some cash with the custodian if you want to make US investments or are new to international banking and want take it slow.

As the manager of the LLC, and the only signatory to the offshore bank account, all investment decisions rest with you. You’re the only person who can send a wire or write a check… which is why we call this an Offshore Checkbook IRA LLC.

This also means that it’s your responsibility to follow the various rules of IRA management. Here are a few articles you might find useful:

If you have a Defined Benefit Plan that you might want to convert to an IRA, see: Maximum Asset Protection for a Defined Benefit Plan

You will also find that there are many tax benefits for sophisticated IRA investors which are only available offshore. For example, the ability to use a UBIT blocker to eliminate US tax in your IRA from leveraged investments. Also the ability to own a portion of an active business, which is operated outside of the United States, whereby the income from the business flows into your IRA tax free.

Of course the main reasons clients take their retirement accounts offshore is to diversify out of the United States, invest in higher returning opportunities, and protect their assets from civil creditors and uncertain times. These are the core principals of the offshore IRA model and goals we can assist you to achieve.

I hope this article on how to take your IRA offshore in 6 steps has been helpful. For more information, please contact us at info@premieroffshore.com or call (619) 483-1708. We’ll be happy to assist to structure your affairs abroad.

Offshore Bank Accounts, Foreign Residency, and Asset Protection from South Africa

04/11/2017/0 Comments/in Articles, Asset Protection, Asset Protection Trust, Banking Offshore, offshore asset protection, Offshore Bank Accounts, Offshore Banking, Offshore Company, Offshore Trust/by Christian Reeves

High net worth South Africans are under attack from all sides… again. This time it may turn into a full blown civil war. At the very least, your assets and safety are at risk. Here’s how to move you and your cash out of South Africa and to negotiate a second residency.

A passport from South Africa is still a great business and banking tool. You don’t have the tax reporting problems we Americans do and you’re not on any of the restricted or prohibited country lists. You can open accounts at most offshore banks relatively easily.

For a list of restricted and prohibited countries, see: Opening an offshore bank account from a restricted country

This means you can qualify for just about every second passport and foreign residency program, as well as open accounts around the world. We have been working with citizens from South Africa for years and will be happy to assist you.

Before I get into what you’ll need to do to open an offshore account as a citizen of South Africa, let me point out that your status might change.

The demand for offshore bank accounts and second residencies has spiked in the last couple of weeks. Where we used to get 1 or 2 inquiries a month from South Africa, we’re now getting 10 or 12 per day.

The problem with this is that countries and banks will begin to put a cap on transactions. They don’t want to get over exposed to any one country. And, whenever world events creates a rush to the exit, some will block movement for political reasons.

If you want to be sure to be approved for residency or an offshore bank account from South Africa, you need to be at the front of the line. There are sure to be some who are unable to get through the que… some will certainly be left behind.

With that said, here’s how to open an offshore bank account, get residency in a foreign country, and build an asset protection structure for citizens of South Africa.

Let me start with an offshore bank account. Because you have a solid passport (for banking anyway), you can open an international bank account in a number of jurisdictions. In most cases, the country will depend on the size of the account.

For example, to open in Switzerland or Andorra, you’ll need $2.5 million or more. These are managed investment accounts where a Swiss investment advisor manages the account per your instructions.

For smaller accounts, you can open in Cook Islands with a deposit of $20,000. In Belize, the minimum is $5,000. However, the fee structure in Belize makes it difficult to open an account with less than $10,000.

These accounts can be in your name or in the name of an offshore structure. For basic asset protection I recommend a Nevis LLC for citizens of South Africa because this is the easiest jurisdiction to deal with from your country.

For larger accounts, and to cover both estate planning and asset protection, I recommend a Cook Island trust. This structure provides maximum protection and the Cook Islands has a lot of experience in dealing with South African clients.

Now on to second residencies. By far the best option for citizens of South Africa is Panama’s friendly nations reforestation program. Because of the passport you hold, you can get residency in Panama with an investment of only $20,000. Those from nations that don’t have an agreement with Panama pay about $110,000 for the same residency permit.

Residency allows you to live, operate a business, and bank in Panama. As a resident, you can buy and rent property and will have access to all the banks in the country. Panama is a world class economic hub and this residency is very valuable for citizens of South Africa.

After 5 years of residency in Panama you can apply for a citizenship and a second passport. Your South African passport gives you visa free travel to 98 countries and doesn’t include the Schengen Region of the European Union.

Panama gives you visa free to 128, including the EU and makes it easy to get a 10 year visa to the United States. Panama is a major upgrade to your South African passport.

If you can’t wait the 5 years for a Panama passport, take a look at Nicaragua. This program requires an investment of $35,000 and you can apply for citizenship after two years. For more, see: The Best Second Residency Program in 2017.

Finally, if you can’t even wait the two years for Nicaragua, and you have about $135,000 to spend, you can buy a passport from St. Lucia. This country is very experienced in handling cases from South Africa and you should have your passport in hand about 90 days.

For more on St. Lucia, see: Changes to the St. Lucia Second Passport Program in 2017

I hope you’ve found this article on how to open an offshore bank account, get residency in a foreign country, and build an asset protection structure for citizens of South Africa to be helpful. For more information, please contact us at info@premieroffshore.com or call (619) 483-1708.

asset protection for defined benefit plan

Maximum Asset Protection for a Defined Benefit Plan

04/09/2017/0 Comments/in Articles, Asset Protection, Asset Protection Trust, Offshore IRA, Offshore Trust/by Christian Reeves

Defined benefit plans are excellent tools to put a lot of pre-tax money away quickly. Because of they don’t have the same contribution limits as IRAs, they allow the business owner to build up savings and reduce taxes efficiently.

Because defined benefit plans build cash quickly, they’re big time targets of lawyers and civil creditors. In this article I’ll show you how to provide maximum asset protection for a defined benefit plan.

The best asset protection for a defined benefit plan is to move it offshore and inside a “trust like” structure. Get it out of the reach of creditors and judges by moving it out of the US and behind the walls of an advanced asset protection structure.

The first step in moving a defined benefit plan is to figure out if it’s eligible to go offshore. In most cases, a plan from a previous employer with a cash value can be protected. If it’s a defined benefit plan from your current employer, and the plan documents allow for a conversion or to be invested abroad, then it too can be placed inside an international asset protection structure.

Sometimes DB plans are in subsidiary companies, or can otherwise be separated from the main business. If this sub can be closed down, the plan might then vest and be eligible to go offshore.

The way you get a defined benefit plan offshore is to convert it into an IRA (either a ROTH or traditional). Then you place that into an offshore IRA LLC. I’ll explain how to do this below. First, you need to find out if your plan can be converted into an IRA.

The bottom line is that you’ll need to ask your plan administrator if your DB plan can be converted into an IRA. They might not know how to take it offshore, but, if they can advise you how to convert it into an IRA, that’s all you need from them.

Assuming you get a positive answer, you need to ask your administrator to convert the defined benefit plan into an IRA.

If your administrator says it’s impossible to convert to an IRA, and he’s making money managing your investments, you might seek out a second opinion. I’ve seen many cases where DB plan administrators put their financial well being ahead of their clients.

Once the cash is an IRA, you can move that account or accounts from your current custodian to one that allows for foreign structures and investments. Not all IRA custodians allow for offshore LLCs and international investments. This is a very specialized area.

Now you can finally get the defined benefit plan offshore. We setup an offshore IRA LLC, open an international bank account, and the custodian transfers the money into this structure. As the manager of the LLC, you will have checkbook control of the account. You’ll make all transfers and be responsible for all investment decisions.

All of the above gets you basic offshore asset protection of your defined benefit plan. If you want maximum protection, we can customize your LLC with features you would normally find in an offshore asset protection trust.

You can’t put an IRA or defined benefit plan into a trust, but we can create an LLC that acts like a trust.

The way we do this is by forming the IRA LLC in the Cook Islands, the top offshore asset protection trust jurisdiction. We then build an LLC operating agreement molded after a Cook Islands asset protection trust.

For example, an offshore trust uses an independent trustee, a protector, and has clauses that make it impossible for the trustee to make payments to creditors. Even if one gets a judgement against you in the United States, there’s no way for them to collect on it in the Cook Islands.

To copy these protection elements, we install an independent LLC manager in the Cook Islands LLC. We also set up a protector who takes over should you (the beneficial owner, similar to a settlor) comes under duress.

To support these professional advisors, the LLC operating agreement includes terms that prohibit the manager from transferring money to the custodian or owner if they’re under duress. The agreement basically creates the defense of impossibility in the Cook Islands to protect the assets of the LLC.

I should point out here that setting up this maximum asset protection structure for a defined benefit plan means that you must also follow the same rules that apply to international trusts. For example, rules around fraudulent conveyance.

In its most basic form, a fraudulent conveyance is when you send money out of the United States to keep it away from a current or reasonably anticipated creditor. If you injure someone today and fund an offshore trust or IRA LLC tomorrow, you’ve probably fraudulently conveyed money into the structure.

Thus, your defined benefit plan must be moved offshore well before you have any legal problems. In a perfect world, it is moved offshore 1 or 2 years before a dispute arises. That is, 1 or 2 years before the harm occurs, not before the plaintiff files a claim against you.

I hope you’ve found this article on how to max protect your defined benefit plan by moving it offshore to be helpful. For more information, please send me an email at info@premieroffshore.com or call us at (619) 483-1708.

How to move your IRA offshore in 2017

04/07/2017/0 Comments/in Articles, Offshore IRA/by Christian Reeves

If you’re looking to diversify your account out of the US, protect your savings offshore, or purchase foreign real estate, here’s everything you need to know to move your IRA offshore in 2017. When done right, moving an IRA offshore is relatively simple.

The first step in moving your IRA offshore is to determine if your account(s) are eligible to be moved. You can move your IRA offshore if the account has vested. This usually means an account from a previous employer… an account that has been transferred from the employer to you.

From time to time, we see clients who have been at the same job for many years. If you’ve been at the company for 10+ years, some of your IRA may have vested. You can check with Human Resources to find out.

Note that you don’t need to be of any particular age to have a vested account. Each IRA from a previous employer is fully vested and eligible to be moved offshore.

Once you have your vested accounts in order, you can begin the process of moving them offshore.

The first step in taking your IRA offshore is to transfer it from your current custodian to one that allows for foreign structures and investments. Most IRA custodians make money selling you investments. So, they don’t want you moving cash out of their control. Note that this is a transfer and not a roll-over. No restrictions apply.

So, you need to move your account to a custodian who charges a flat annual fee, that doesn’t sell investments, and who allows for offshore structures. We recommend Midland, NuView and SunTrust, but there are many good custodians out there.

Once your custodial account is setup, you contact us to form an offshore IRA LLC for you. We incorporate the company, draft the operating agreement, and handle the structuring side of the process.

We also open an offshore bank account for you. Once the LLC and account are ready, your custodian transfers the cash in your IRA to this international bank account.

Your LLC is owned by your retirement account and you’re the manager of that company. That means you have total control over the bank account. You make the investments, send the wires, and write the checks. Your custodian has no control over the bank account.

The asset protection component of the structure comes from the fact that the LLC and bank account are outside of the US and out of the reach of a US creditor. Also, the fact that the custodian has no right to force you to return the money to the US provides an increased level of protection.

That’s everything you need to know to take your IRA offshore in 2017.

The most common question we get at this point is, what size IRA can go offshore?

The answer is that it’s up to you. The costs of moving a retirement account offshore are fixed. They don’t change based on the size of the account. Here’s a summary of those costs:

Your US custodian will probably charge a flat fee off $300 per account per year.
The cost to form the IRA LLC is around $3,000 depending on the country.
The cost to open an offshore bank account is $500
The annual fee to maintain the LLC is $500 depending on the country (beginning in year 2)

If you have a reason to take an account of $30,000 offshore and pay these fees, then go ahead. I’d say most clients have $50,000 or more they wish to protect, but everyone’s objectives and investment strategies are different.

I’ll close with a few suggestions for your IRA when you get it offshore. Note that my firm makes money setting up the structure. We don’t sell investments and we don’t earn a commission if you make an investment.

This tip can increase your ROI by 30% or more: When using your IRA, invest in low tax countries! Remember that profits from rental properties or capital gains will flow into your IRA tax free. Investing in a high tax country will lower these returns significantly.

So, hold your stock, FX, and trading accounts in a country that won’t tax your gains. Buy real estate in a country with a low capital gains rate. For example, Belize has a 0% rate, which is about as low as you’ll find!

Next, use your IRA to get a second residency. You can invest $20,000 in Panama, or $35,000 in Nicaragua, using your IRA and get residency for free.

Nicaragua is a great deal if you want to live there. If you spend 6 months a year for two years in country, you qualify for citizenship and a second passport. For more, see: The Best Second Residency Program in 2017

If you want residency without a physical presence requirement, look to Panama. Here you can apply for citizenship after 5 years. For more, see: Best Panama Residency by Investment Program

I hope you’ve found this article on how to take your IRA offshore in 2017 to be helpful. For more information, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

Where to buy international real estate in 2017

04/05/2017/0 Comments/in Articles, Offshore IRA/by Christian Reeves

President Trump has promised to rewrite the US tax code as it applies to international business and foreign investment. He has also promised to lower both the capital gains rate and the personal income tax rate. With that in mind, this article will help you figure out where to buy international real estate in 2017.

You might be thinking, what the heck does any of this have to do with where I should buy international real estate. Well, the tips I’ll give you below can increase your returns by as much as 20%. Coordinating US tax policy with your foreign investment portfolio can make a very big difference.

We Americans are taxed on our worldwide income no matter where it’s earned. If we pay tax in a foreign country, we get a foreign tax credit from Uncle Sam to avoid double taxation. However, we will always pay at least the US rate.

The US rate for long term capital gains is currently 20%. It might go down to 10% or 15% under Trump. This is the minimum tax we will pay on gains from foreign investments.

For example, you buy a property in Colombia for $100,000 and sell it for $200,000 after 5 years. Your gain is $100,000. Colombia’s capital gains tax rate is 10%, so you will pay this to the local government. This leaves 10% available for the IRS.

So, even when you invest in a country with a 10% rate, you will pay a total of 20% because you’re a US citizen in 2017. Hopefully this will go down in 2018.

If the US rate goes to 10%, you will pay the same 10% to Colombia and nothing to the United States. Likewise, if the US rate goes to 15%, you will pay 10% to Colombia and 5% to Uncle Sam.

So, the key to tax efficiency in international real estate investing is to purchase in a country with a tax rate equal to or lower than the United States. You’ll always pay the US rate, but you never want to pay more than this.

With Trump looking to cut the US capital gains rate, international real estate investors need to rethink their strategies. Focus on countries with low tax rates to maximize your after tax ROI.

The same goes for local taxation of rental income. You’ll always pay the US ordinary income tax rate on rental profits. You don’t want significant rental income in a country with a rate significantly higher than the United States.

This isn’t always so easy to figure out. If you’re at the top of the US income brackets, just about every country will have a rate equal to or lower than your US effective tax rate. If you don’t have much ordinary income, then you want to watch your foreign tax rate carefully.

For example, Colombia taxes rental income at 33%. Also, they don’t allow you to deduct depreciation. So, Colombia’s tax rate on rental income can be much higher than your US rate, depending on your situation.

Someone focused on capital gains might like Colombia while someone focused on cash flow should look elsewhere.

This all goes double for US investors buying international real estate in 2017 using their retirement accounts. When you buy foreign real estate in your US IRA, you pay zero tax if it’s a ROTH and get significant tax deferral if a traditional account.

Thus, any foreign taxes paid are a waste of money because there’s no offsetting foreign tax credit and no minimum tax floor set by the US capital gains rate. IRA investors should focus on countries like Belize with zero capital gains tax or Nicaragua with a 10% rate.

Coordinating your US tax bill with the tax rate of the country where you purchase real estate can significantly increase your net return. If Trump’s tax cuts come through, those who have invested in low tax countries will be rewarded.

I hope you’ve found this article on where to buy international real estate in 2017 to be helpful. For more information, or to take your IRA offshore, please contact us at info@premieroffshore..com or call us at (619) 483-1708.

Changes to the EB-5 Investor Visa in 2017

03/31/2017/0 Comments/in Articles, Taxation/by Christian Reeves

The US EB-5 investor visa is one of the lowest cost residency to citizenship programs on the planet. Yes, you heard me right… you can buy US citizenship for a fraction of the cost of other top countries. Here’s how the EB-5 investor visa is going to change in 2017 and why it will still be a great bargain.

As of today, March 25, 2017, you can get US residency by starting a business in the United States with a $1 million investment and employing 10 people. If you set up that business ins a “distressed” area, your investment goes down to $500,000.

Compare that to Austria. The government of Austria will grant you citizenship with an investment of EUR 3 to 10 million in a business which will employ a “substantial number of people.” The investment amount is negotiated on a case by case basis. Most end up investing about EUR 5 million… 5 times more than the United States.

For reference, Australia, the UK, and Canada also have comparable investment programs at $1 million to $5 million. Malta is about $1.2 million, but it’s a very different offer. For more on this EU passport, see: Second Passport from Malta

Here’s how the US EB-5 investor visa works. You setup your own business which will employ 10 people, or invest in someone else’s business which will employ that number. Many very large projects, including hotels, resorts, call centers, etc. qualify for EB-5 status. Really, any for profit business that needs a lot of employees is a good EB-5 investor visa opportunity.

Once that business is up and running, you apply for your EB-5 investor visa. This gets you and your family (spouse and dependent children) into the United States. You enter on a residency visa and receive your green card shortly thereafter.

So long as the business is active, and employees at least 10 people, you will maintain this residency. After 5 years of residency, you can apply for citizenship.

Those using the EB-5 investor visa are guaranteed citizenship at the end of 5 years of residency. There are no quotas or limits… stick to the terms of your agreement and you and your family will receive US passport(s).

The US EB-5 program is the most popular residency program in the world. It’s raised at least $8.7 billion and created 35,150 jobs since 2012. The program issues a maximum of 10,000 green cards a year and 90% of the applications come from China.

That’s the US investor visa today. Here’s how the EB-5 investor visa is likely to change in 2017.

Expect the $500,000 distressed option to go up to $1.35 million. Bottom line, this program was supposed to help poor areas with high unemployment. In practice, all the cash went to fancy hotels and resorts. Thus, the investment amount is going up, way up.

For those starting businesses that are not in designated low income areas, the minimum investment is going from $1 million to $1.8 million.

When might these changes come into effect? The EB-5 investor visa program is up for renewal on April 28, 2017. I expect changes to the program shortly thereafter.

Two items of note:

First, remember you must keep your business going throughout your residency period. Once you have your passport, you can shut it down. This means you must keep 10 employees working for 5 to 6 years. If the business makes a profit, great – you can take out your earnings. If you lose money, you’ll need to invest more to reach break-even or profitability.

I can’t see starting a business that will employee 10 people from day one with less than $2 million. The original investment amount was set in 1990, when $500,000 to $1 million was real money. Today, it would be difficult to reach ramen profitability with that capital and 10 employees.

Second, the investment requirement is NOT the highest cost associated with the EB-5 investor visa for a high net worth person. The real cost is in taxes, taxes and taxes.

Only the United States taxes its citizens and green card holders on their worldwide income. Once you have that residency visa, you’ll pay US taxes on 100% of your income, no matter where you live and no matter where it’s earned.

None of the other countries mentioned here, such as the UK, Austria, Australia, and Malta, tax nonresidents on income earned abroad. You only pay tax in Austria if you are living in Austria. Get your passport and live elsewhere and you pay zero.

So, someone living abroad might be paying zero tax on $3 million a year in business income with an Austrian passport. If they sign up for the US EB-5 investor visa, they’ll pay 35% to the United States, plus another 10% to their state. This means you’re paying $1,350,000 in taxes on $3 million of income each and every year for the right to a US passport.

There is one way to get your US passport and cut your tax rate from 40% to 4% on business income and 0% on capital gains. Set up in the US territory of Puerto Rico. For more on this topic, see:

Coming to America Tax Free with the EB-5 Visa and Puerto Rico

Where to start an EB-5 business

I hope you’ve found this article on the United States EB-5 investor visa helpful. For more information on this, or setting up a business in Puerto Rico, please contact us at info@premieroffshore.com or call us at (619) 483-1708.