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De ce pornografia nu ar trebui să fie singura ta plăcere

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Pornografia poate fi o modalitate excelentă de a pune cuplurile pe aceeași pagină despre fanteziile sexuale și de a-i încuraja să încerce lucruri noi în pat.

Cu toate acestea, este important să ne amintim că pornografia nu ar trebui să fie niciodată singura sursă de plăcere.

Videoclipurile cu sex mai sigur de la GMHC au căutat să redirecționeze dorința către o nouă tehnologie de reducere a riscurilor. Majoritatea au prezentat actori amatori, în conformitate cu angajamentul lui Bordowitz față de un etos al „pornografiei oamenilor”.
1. Este o formă de auto-plăcere

Mulți oameni se bucură de vizionarea videoclipurilor porno pentru că pot fi o formă de auto-plăcere. Sunt o modalitate prin care oamenii se pot răsfăța cu fantezii și fantezează despre propriile plăceri sexuale. Este important să ne amintim, totuși, că aceste videoclipuri nu sunt menite să reprezinte viața sexuală reală. Sunt puse în scenă și editate pentru a face modelele să pară sexy. Ele pot fi, de asemenea, deranjante pentru unii oameni, deoarece arată acte care nu sunt potrivite în lumea reală.

În timp ce fotografiile cu pula sunt grozave pentru a le trimite persoanelor pe care le cunoști bine, videoclipurile cu masturbare sunt mai intime. Acest lucru se datorează faptului că sexul poate fi comunicat doar prin mai mult decât prin ochi. Sunetul gemetelor unei persoane poate fi la fel de erotic ca un nud frontal complet.
2. Este o formă de masturbare

Pornografia este o formă de masturbare care vă poate oferi plăcere. Este o modalitate grozavă de a-ți explora sexualitatea și fanteziile fără să-ți faci griji pentru sarcină, ITS sau pentru a-ți face plăcere partenerului. De asemenea, te ajută să dormi mai bine, îți îmbunătățește stima de sine și imaginea corporală și reduce stresul și depresia.

Din păcate, porno poate duce la o dependență, mai ales cu disponibilitatea ușoară a acesteia pe internet. Vizionarea pornografiei pentru perioade lungi de timp poate suprastimula calea recompensei și poate provoca o poftă mare pentru aceasta.

În plus, vizionarea pornografiei te poate face să obiectivezi oamenii și să-i tratezi ca pe niște obiecte pentru sex. Acest lucru poate avea un impact negativ asupra relațiilor tale și chiar le poate face toxice. Din fericire, există modalități de a întrerupe acest ciclu, inclusiv utilizarea unei aplicații de oprire a sexului precum BlockerX.
3. Este o formă de educație

Pentru mulți adulți, pornografia a devenit o formă de educație și formare sexuală. Cu toate acestea, marea majoritate a pornografiei de masă nu este educație sexuală reală.

Acesta este motivul pentru care Pornhub a lansat o nouă serie de filme porno  numită „Real Sex Education”.

Primele 11 videoclipuri din serie prezintă o varietate de subiecte, inclusiv comunicarea, eticheta sexuală și ITS. Fiecare videoclip este povestit de un terapeut sexual autorizat și folosește anatomia reală pentru a explica conținutul.

Adolescenții apelează la TikTok ca sursă de educație sexuală, dar cercetătorii avertizează că ar putea primi informații greșite. Un studiu publicat anul acesta în Health Promotion Practice a constatat că adolescenții care folosesc platforma de social media pot fi expuși unui „curriculum de educație sexuală diferit de cel predat acasă, cabinete medicale și școli.
5. Este o formă de divertisment

Pe lângă faptul că este distractivă, media pornografică oferă o varietate de fantezii sexuale pentru adulți. De la femei care se prăjesc pe prăjituri până la grupuri în trei, există o mare varietate de dorințe sexuale care pot fi îndeplinite cu un clic de mouse.

Pornografia poate, de asemenea, să normalizeze fetișurile sexuale și să reducă stigmatizarea, arătându-le potențialilor că dorințele lor sunt legitime.

De exemplu, un studiu a constatat că vizionarea pornografiei a redus nivelul de cortizol al bărbaților, ceea ce i-a ajutat să aibă rezultate mai bune în problemele de matematică.

Cu toate acestea, multe site-uri web pornografice mainstream prezintă mesaje misogine și sunt adresate privirii masculine. Site-uri cu pornografie etică precum Make Love Not Porn prezintă „sexul real în toată umanitatea sa glorioasă, prostească, frumoasă, dezordonată și liniștitoare”. Site-ul acceptă trimiteri de spectatori pentru videoclipuri erotice și plătește artiștii în funcție de cât de mult sunt vizionați.

finance real estate overseas
Christian Reeves

How to Finance Real Estate Overseas

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To finance real estate overseas you must jump through all kinds of hoops and apply to multiple lenders in hopes of getting a decent rate. Compared to applying for a mortgage in the U.S., the battle to finance real estate overseas can seem confusing at best and silly at worst.

First, lets talk about why it’s so challenging for us to finance real estate overseas. When you’re an American investing in a foreign land, you have two strikes against you. We’re persona non grata in many countries around the world. The U.S. IRS has made it nearly impossible for us to open bank, brokerage, or escrow account. All institutions and firms that handle money are wary and weary of doing business with Americans.

And, we rarely have significant ties to the country where we want to purchase property. We have no credit history, nothing for a bank to latch on to if we default, and are as such considered a high credit risk. The only asset the lender is likely to have access to is the property.

Financing real estate overseas is like borrowing in the U.S. with a zero credit score and on a nonrecourse loan. If you are lucky enough to find a bank and escrow agent willing to take on American clients, the due diligence will be stringent and the interest rate high.

How high you ask? In most parts of Latin America, you’re looking at 6% to 12%, with the average being closer to 10%. And that’s the rate you might expect on a 50% loan to value. If you want to borrow 75% of the value of the property, that last quarter of the purchase price might cost you 20% or more.

Still Want to Finance Real Estate Overseas?

Ok, I bet many stopped reading a while back. Those of you still with me probably have had some experience offshore and knew going in that it can be expensive to finance real estate overseas. Here is what you’ve been waiting for. Some of these ideas are obvious, and some require a bit more planning.

  1. Pull equity from your U.S. home. Your most friendly partner will always be your U.S. real estate. You might get a second mortgage at 2.8% APR, just a fraction of what you will pay overseas. If you have equity in your home, this might be your first best hope to buy real estate overseas. Of course, the days of no document loans are gone, but this is still a viable option for many.
  1. Some banks lend to Americans no matter where the property is located. There are a few U.S. banks, and even fewer offshore banks, that will lend to Americans investing overseas. The international bank I recommend is Caye Bank in Belize. They offer financing for overseas real estate in a number of markets.

Another bank that finances offshore real estate, and is just a bit bigger than Caye, is HSBC. Their international division will lend against real estate in many countries, especially in Asia. Click here for more information on the international division of HSBC.

  1. Use a private lender to finance your overseas dreams. There are private or hard money lenders focused on overseas real estate. If you’ve opened an offshore company, have a foreign trustee for your asset protection trust, or have a relationship with an offshore bank, ask about private financing. You’ll be surprised how many lenders want to diversify into these markets.

Please note that this is for information purposes only. Premier Offshore is not a lender nor do we provide introductions to lenders.

  1. Negotiate with the seller. Seller financed real estate is rare in the U.S. but common offshore. Because credit ratings and the MLS system are nonexistent in most countries, mortgages are hard to come by for foreigners and locals alike. For this reason, seller financing is common.

Seller financed overseas real estate might mean you are paying the owner directly, in a rent-to-own situation, or taking over the existing mortgage with the original owner as co-signor. If you pay off the debt, the property reverts to you. If you default, the seller steps in and makes payments, taking back the home.

  1. Developer or builder financing on new overseas real estate. Just about every major new development, including condos, single family homes, and resort investments, offer financing. Many of these options are funded by the builder and offer better terms than local banks. They want you to buy in to their project so they’ve worked the market to offer the most competitive rates available.

One of my favorite developers is ECI. They have great financing options along with unique projects in some cool areas. For more information, see ECI Development.

  1. Buy offshore real estate in your IRA. Yes, you can buy overseas real estate in your U.S. retirement account. The most efficient way to do this is to form an offshore IRA LLC or Foundation (if buying in Panama), transferring your retirement account into that entity, and then making the investment.

More on Overseas Real Estate in Your IRA

And here is some good news. You don’t need to report offshore bank accounts or investments to the IRS if they are within your retirement account. IRA investments are exempt from FBAR, Form 5471, and related offshore reporting requirements. You need only inform your U.S. custodian of their value at the end of they year and he or she will handle any filings.

Of course, there are rules for buying overseas real estate in your retirement account.

First, you can’t live in the property…even for one day. It must be an investment or rental property. You can’t rent it from your IRA and may not have any personal gain from the property. All benefit are to accrue to the IRA and not you personally.

Second, if you borrow money to buy the property, you can’t pledge your IRA assets, or sign a personal guarantee, to secure the loan. That is to say, if you buy overseas real estate in your retirement account with a mortgage, you must use an unsecured loan…a mortgage backed only by the property. Such arrangements are more common overseas than they are in the U.S. and typically mean you won’t get more than a 50% LTV.

Also, if you use a mortgage, you might benefit from an advanced structure called a UBIT Blocker. See: Eliminate UBIT in Your IRA by Investing Offshore.

To peruse my various articles on buying foreign real estate in your IRA, or the tax consequences of investing in overseas real estate, please click here.

Please note that we at Premier Offshore do not offer loans. Since the posting of this article, it has become very difficult to get loans outside of the Untied States. If you would like to finance property in Belize, Costa Rica, Panama, or Nicaragua, I suggest you contact Caye Bank in Belize. This is the only lender we are working with in 2016.

Offshore Investment
Christian Reeves

Aged Population to Stress the Economy

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Aged populations will be the norm by 2020, placing a great deal of stress on world wide economic systems, especially those founded on government backed treasuries and bonds. Other areas of weakness will be Social Security and Medicare. As our population ages, we can expect higher taxes on our IRA and passive investments. Here’s why the average age of our population matters and how to protect yourself.

Definition: An aged population is a country where 7% or more of the population is 65 or older. A super-aged society has 20% or more of its citizens over 65. We assume people will retire at 65.

Over the next 6 years, the number of super-aged societies will increase from 3 to 20. According to an August 6th report from Moody’s, this nearly seven fold increase will place a great deal of stress on our economy and the United States dollar.

Here’s Why Aged Population Matters

Studies have shown that, as a population ages, the demand for treasuries and bonds increase. The higher the average age, the higher the reliance on fixed income government backed instruments. The bottom line is that pensioners go for fixed income instruments as “safer” than stocks and real estate.

Large changes in behavior move markets. Higher demand for fixed income investments will push prices down. But, the U.S. is now returning about 2%, and 45% of the world markets are returning 1% or less on their government backed fixed income instruments. There’s just no where for these markets to go.

But I’m getting ahead of myself. Let me take a step back and explain.

Of the developed nations, most of the European Union is aged. Also, the United States, Canada, and Australia have aged populations. The super-aged nations are Germany (with returns on bonds of 1% or less), Italy, and Japan. Japan has the oldest average population in the world.

By 2015, Finland and Greece (a model of financial stability) will join the group of super-aged nations. The Netherlands, Portugal, Slovenia and Sweden will arrive at the party by 2020. Eleven more countries will pile on by 2025.

Of the developing nations, or the BRICS, Russia, Brazil, and China are all aged. None are at risk of becoming super-aged.

These changes have a profound effect on our economy. For example, Moodys found that world savings declines by .5% to 1.2% for each 1% increase in the aged population. That is to say, for every 1% increase in those 65 or older, we see a .5% to 1.2% decrease in total savings.

As retirees begin to deplete their IRA accounts, and live on their savings rather than saving and spending their salaries, the average level of savings decreases. When countries become aged or super-aged, the result can stress the market.

When you combine this with lower returns on treasures and fixed income instruments (bonds for example), we can expect the level of savings to decrease at a faster rate. As returns decrease, retirees will need to reduce their expenses (quality of life) and increase their rate of withdrawal.

Let’s look at another statistic…yes, I’m in a numbered state of mind today.

The “support ratio” is the number of eligible adults expected to be working. These working adults are paying in to the system and keeping the system afloat. As the average age of the population increases, the number of workers paying in to the system decreases, further straining an already dire situation.

The lowest support ratio is found in Japan. This country has 48.7 persons aged 65 or over for every 100 eligible worker in the 15 to 65 age range. By 2020 the burden of 1 retiree will be carried by only 2 workers. A ratio that many believe to be unsustainable.

Thirteen European countries, including Sweden and Germany, will have ratios between 2.7 to 1 and 3.3 to 1 by 2020. Canada is currently at 3.6 to 1 and the United States is at 3.9 to 1. In Asia, South Korea is 4.6 to 1 and China is 6:1.

Note that these numbers count eligible workers, not the actual number of people in the workforce. The higher a country’s unemployment rate, the greater the threat.

Nations in current financial crisis with extremely high unemployment rates are under more immediate pressure than those with lower unemployment. Greece and Portugal have more pressing concerns with their aged populations than does Germany or Japan.

The United States is hiding the truth in its unemployment  statistics. While the rate seems to be improving, we don’t know how many workers have simply stopped looking for work and therefore are no longer considered unemployed. We do know the U.S. has a 62% labor participation rate. If applied to our support ratio, it could move from 3.9 to 1 to 2.2 to 1 (though, this is a mixed bag and like comparing apples to mangos).

What does all this mean to you?

  • We can expect even higher taxes on capital gains and retirement account distributions.
  • The nationalizing of the retirement account system to cover debts from Social Security becomes more likely.
  • The age of retirement may be increased.
  • The assets within your IRA will become targets of the IRS and other cash strapped agencies. Remember that the IRS may seize your retirement account and State laws, such as homestead exemptions, don’t protect you.
  • As the government continues to focus on controlling capital, limitations on IRAs will increase. Most believe the right to take your IRA offshore will be eliminated.

The bottom line is that retirees will be required to make even greater sacrifices to keep the U.S. financial system afloat. It will fall upon you to keep the economy together. We don’t know exactly what form these forced contributions will take, but we know they are coming.

I hope you have found this post on our aged population thought provoking. For information on how to take your IRA offshore, or for questions on any article on this site, please send an email at info@premieroffshore.com

IRS Data Collection
Christian Reeves

The IRS Data Collection Machine

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Much like the NSA, the IRS data collection machine is building a file on all Americans. It’s online now and will be ready to use in all audits within one year.

The IRS collects more useful data on you than does the NSA and will begin making it available to auditors shortly. Some IRS data collection methods, such as grabbing Facebook posts and bank records before beginning an audit are already common practice.

Historically, the IRS relied on Americans to self report, and matched those tax returns to forms from U.S. employers, mortgage companies, and banks. If your 1040 tax return didn’t match your W-2 wage statement, or 1099a (stock trades and independent contractors), bank interest income, property tax and mortgage interest reports, sale of real estate, K-1s from partnerships, etc., then you would receive a letter from the IRS. You would either be told to send in more money because your tax return didn’t match what the IRS computers say you owe (called a change report), or you would be audited.

Beginning in 2014, the IRS will get much of this same information from foreign banks and brokerages. If you have a bank account or investments offshore, expect that your institution will be reporting to the IRS. (Search FATCA for more information).

In addition, the IRS has been building backdoors in to most email systems and social media companies. The great collector is amassing enormous amounts of data on you, your friends, your income and assets, and your travel. You can be certain that these IRS data collection tools will be used against you in future audits.

I also believe this IRS data collection system will be used to target individuals and companies. Maybe groups will be selected for audit because their online activities show they are likely to have unreported income, or maybe individuals and charities will be selected based on political affiliation. No matter how it’s used, these new IRS data collection tools put you at a significant disadvantage.

Of course, the IRS says they don’t use “big data” to target or select individuals for audit. They claim it’s used in micro analysis only. IRS data collection is used to “estimate the U.S. tax gap, predict identity theft, and find refund fraud” (according to the IRS data collection office).

* The tax gap is the difference between how much is owed and how much is collected by the IRS.

Whether or not you believe the IRS, they are hoovering up data on Americans like the NSA. Though, the IRS is going after more actionable data. Information that can be used against individuals in an audit. So far, it has been shown that the IRS is collecting the following:

  • Phone bills,
  • Credit card statements,
  • Bank statements (not just interest income or 1099s, but complete copies of your bank statements),
  • Hotel, air and other travel information,
  • Copies of contracts,
  • Facebook, Twitter, eBay, Google, and all social media accounts,
  • Skype history, including chat and location data, and
  • All email systems including Google.

No matter what you may hear in the press, the IRS often comes armed with one or more of these items in large audits. I have personally been involved in cases where travel records, bank statements, Facebook and Skype activity, and email hacking have been used by the IRS against the taxpayer.

One tip you might find helpful for email: Google and others backup messages for about 9 months after you delete them. If you use a U.S. email service, deleting messages right before the hammer comes down is not helpful.

As for Skype, it’s often used to track your phone calls and chats. I have also see it used to track you. When you login, Skype keeps a record of your IP address. With this, the IRS knows where you are in the world. For example, I have seen Skype records used to prove someone was in Panama.

This is all to say that the IRS is currently collecting massive amounts of data on U.S. persons and putting it to use far more effectively than the NSA. Expect IRS data collection to be used to find targets and during the audit process. If you are currently being audited, assume the IRS has access to all of your emails and social media accounts.

Have you been making calls to offshore banks? Then you might become a target. Have you traveled to St. Kitts and Nevis recently? What about Hong Kong? Your travel logs may soon be compared to your U.S. tax return and your FBAR. If you’ve been to Hong Kong on business, but never disclosed any assets, banks, or income from there, you may be a prime audit candidate.

I believe these IRS data collection tools are an egregious breach of our personal privacy. A government agency is collecting data to be used in civil or criminal cases without court oversight or a warrant. Add to this the fact that the IRS has been hacked on multiple occasions and frequently shares its data with 3rd party contractors and collection agencies, and you see the risk of identity theft or harassment.

And these IRS data collection systems are unnecessary. 98% of the revenues collected by the IRS come in from voluntary filings. Does plugging a 2% gap warrant such draconian measures?

Offshore IRS Audit
Christian Reeves

Prepare for an Offshore IRS Audit

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There’s no worse feeling in the world than coming home to a letter from the IRS telling you that you are being audited … until you get notice of an offshore IRS audit. No matter how organized you are, you should fear the great IRS. If you have unreported accounts or become the subject of an offshore IRS audit, you need to take steps to protect yourself.

In this article, I’ll explain what you can do to prepare for an offshore IRS audit. If the collector is closing in, you have options. If the government isn’t at your door today, use these tips to structure your offshore affairs before trouble finds you.

First, you need to figure out how scared you should be. If you have an unreported offshore account or offshore company, you should be very afraid … a 10 out of 10. If you had more than $10,000 in an offshore account, even for one day, you face serious risk if you didn’t file an FBAR.

If you used an offshore incorporator to form your offshore company that doesn’t provide U.S. tax compliance, you should be concerned … anywhere from a 5 to 8 out of 10. This is because you might have failed to file a form or two. Even if you submitted the Foreign Bank Account Report (FBAR) and paid tax, you could be facing hundreds of thousands of dollars in penalties for not reporting the structure.

Second, you need to determine your risks. Are there any unfiled returns or forms? Any unreported income the auditor might find? Have you underrated your income or overstated your expenses? Are your records well organized and ready for an offshore IRS audit? If they are all stuffed in to the shoebox under your bed, the answer is no!

Finally, I strongly recommend you get help when facing offshore IRS audit. Only an experienced professional is capable of identifying these risks and determining how likely they are to come to light in the exam.

While I certainly appreciate your perusing this site, and my many articles on offshore filing, I am writing on their general use. When facing someone from the government whose only mission in life is to take what you have, you should hire a professional, even a tax attorney, to represent you. He or she will analyze your specific situation, identify weaknesses, and develop a comprehensive plan to deal with the offshore IRS audit.

Even if you think your risks are minimal, or you don’t have the money to hire a tax lawyer, at least consult a professional. Let them review the audit request, and consider your situation. Find out if they believe you can handle the agent on your own. This might cost a few hundred dollars, but will give you peace of mind. Be honest and tell them all the good or bad during the consultation.

Prepare for an Offshore IRS Audit

Whether you’re going in to battle alone, or with a tax lawyer by your side, here are my recommendations on how to prepare for an IRS audit that includes offshore transactions or international investments.

Don’t be a snitch! Never volunteer information in an IRS audit and this goes double in an offshore IRS audit. The agent is NOT your friend. He’s there to find errors and extract a penalty for those mistakes. While you must always be honest, only answer questions that are asked. Never volunteer new information or expand on a subject beyond the question. You might think you are helping, but you’re just making things worse.

The same goes for documents. Never give more paper than is requested. You might think it shows good faith, and you’d be wrong again. More documentation just gives them more ammunition. More chances to find an error or a discrepancy.

If you take my message to heart and hire a tax professional to do battle with the IRS, you might never speak to the agent. When I was representing clients in offshore IRS audits, I never let the agent get near them. All communications went through me and me alone. I minimized the information exchanged and did my best to keep the auditor focused on areas that were our strengths … and away from those that were of concern.

Review your bank statements. Go through your bank statements and understand each and every deposit. Those that are income should be identified as such. Those that are nontaxable, such as loans and gifts, should have supporting documents. The first line of attack in an offshore IRS audit is the bank statement, so be ready to prove up all nontaxable items.

At the same time, identify and find documentation for all business expenses. If you deducted it, have an invoice or receipt ready to go. Never be caught off guard when the agent asks, “What’s this payment for?” Have an answer with proof ready.

Remember that, so long as you are a U.S. citizen, the IRS has a right to audit your offshore company and international business activities. Therefore, you must maintain records of income and expenses for offshore transactions just as you would for a U.S. based business.

I understand that sometimes practices in foreign countries conflict with your desire to document expenses. For example, it is common to pay employees in cash in South America, but it’s hard to prove this as an expense to the IRS.

What I’ve found successful in offshore IRS audits is a log book. Keep a book of each cash payment including the date, employee (independent contractor), brief job description, amount, and their signature. So long as you keep a signed log, cash payments will usually be accepted by the IRS.

Don’t file a tax return during an offshore IRS audit. If you file new or delinquent returns during an exam, the audit will usually expand to add those years. If you file a return claiming foreign sourced income during an audit, you might be admitting to a crime … something you should never do. If your audit is going on around April 15, get an extension for last year’s return until October 15.

If you have unfiled returns, the agent will probably ask you to file them with him. Assume they’ll be audited and be prepared to prove each item. If you have unfiled returns and offshore issues, see Rule 1: Hire a Professional Immediately.

Foreign Earned Income Exclusion (FEIE): If you are living and working abroad, and qualify for the FEIE, you can earn nearly $100,000 per year tax free in a salary. However, if you don’t file a return, and get mixed up in to an offshore IRS audit, you can lose the FEIE entirely. That’s right, if you don’t take the FEIE you can lose it if you’re audited. If the IRS hasn’t contacted you yet, remember, use it or lose it and file as soon as possible.

Get your records in order. Begin to get your documents and supporting proof together the day you receive the IRS letter. Don’t delay and don’t put it off. I can’t tell you how many people hide their heads in the sand for weeks after receiving an offshore IRS audit notice. Don’t waste a minute. Get ready to meet the enemy in combat as soon as possible. The day of reckoning is coming and you are well behind in the count. You need every second to get ready.

It will take longer to organize your paperwork than you expect. Also, being proactive will give you time to develop a plan of defense and order any missing documents from banks, brokerages, etc. Remember that you never want to answer a question with “I don’t know.” You need to be ready and organized on day 1 to show you’re not the easy target the auditor is looking for … not a pushover who’ll go quietly, but rather someone who’s prepared and knows his rights.

* Note that all records must be printed. The IRS auditor won’t accept electronic files.

Try to be nice. Even if you have to fake it, be nice and courteous. Most IRS auditors are just doing their jobs … which, unfortunately, is to separate you from your money. They view you as one of their 100+ cases. Don’t be rude or do anything to get on their bad side. Remain one of 100. There is no reason to draw their ire or special attention.

If you are unable to deal professionally with an offshore IRS audit, don’t get involved and see rule 1 again. Hire a professional and stay out of the room. One of a tax lawyer’s more important skills is to treat the auditor with respect and direct them away from areas of concern.

Have a payment plan in mind. If you think the auditor will find your undocumented expenses or unreported income, have a plan to deal with the resulting tax bill. If offshore IRS audit will result in a balance due, you need to be ready to pay up. If you can’t pay now, have installment agreement ready.

For more information on setting up a payment plan, I suggest you read through www.taxdebtrelief247.com. This blog has quite a bit of quality information on how to deal with the collection division of the IRS.

I also recommend How to Settle with the IRS by Goldstein and Ofstein, and Stand Up to the IRS by Frederick Daily. Both of these books are available on Amazon.

You can find my book on international tax and business for American expats on this site (see the bookstore). It includes detailed information on battling the IRS in an offshore audit and settling with collections.

I hope you have found this post on offshore IRS audits helpful. Feel free to email me at info@premieroffshore.com with any questions or suggestions. If you require a tax attorney experienced in these matters, I will be happy to provide you with a referral.

IRS Data Collection
Christian Reeves

How to Close an Offshore Company

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Did you form an offshore company but the business didn’t go as planned? Do you need to close an offshore company? There are two ways to go about this.

To close an offshore company that’s never done any business and has not yet opened a bank account, “allow it to die a natural death.” This is what we in the business call it when you stop paying the annual fees (usually about $800 per year).

An offshore company dies a natural death and is struck from the register of companies when you don’t pay the annual fee for two years. After 12 months, the company is listed as inactive. After 24 months it is usually deactivated.

Remember that you have no personal liability for the annual fee of an offshore company. While your incorporator (including Premier) will send you bills, you are under no legal obligation to pay them. If you have no other considerations, this is the best way to close an offshore company.

Though, let’s look at some of those “other considerations.”

You must continue to file your U.S. offshore company tax returns (usually IRS Form 5471) so long as you have a bank account or conduct any type of business. When you are ready to close an offshore company that was active, or one with a bank account but no business, you need to file a final U.S. return.

This requirement doesn’t affect your ability to allow the offshore company to die a natural death once your filing obligations are over. You can still close the offshore company by not paying the annual fee so long as you file your US forms.

The same goes for the Foreign Bank Account Form (FBAR). If you have $10,000 in an offshore bank account, even if it’s only for one day, you must file an FBAR. I suggest that anyone required to file an FBAR must also file their corporate tax returns.

Also, while you are obligated to file these forms, you should not close an offshore company. Your entity should always be in good standing in years you are obligated to file U.S. tax returns and/or FBAR forms.

So, if you have any bank accounts or assets outside of the United States held by the offshore company, it should remain in good standing. Once you liquidate those assets, keep the company active through the end of that calendar year. When you have no more U.S. filing or reporting obligations, go ahead and close the offshore company.

Of course there are exceptions to this general advice. If your business or offshore company has a carry-forward loss, or there are shareholders who demand you formally close, you need to file forms to close the offshore company. In this case, you should expect to spend $1,500 to $2,500 to dissolve the company. Additional fees may apply if your shareholders require certified documents.

Panama Tax
Christian Reeves

Panama Tax Review

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If you’re an American living, working, or investing in Panama, the Panama tax system is your friend. The Panama tax code may allow you to live tax free in Panama and, possibly, in the United States. This Panama Tax Review will explain how to reduce your worldwide tax bill.

Before getting in to specifics, it’s important to note that Panama, like all civilized nations (not the U.S.), taxes you on your local income. Only America taxes its citizens on their worldwide income.

So, if you move to Panama and open a restaurant, you pay income tax on your profits. You will also be subject to payroll and social security taxes. This is the same result you get in the United States.

However, if you move to Panama, and structure your business properly, you won’t pay Panama tax on foreign incomes. If your business is selling a product to clients in the United States, all income earned in Panama is foreign source (from the U.S.) and not taxable in Panama. If you are selling to individuals in Panama and the United States, only those sales to Panamanians are taxable.

This is the opposite result you get with a U.S.-based business. When you operate from America, and sell to people outside of the country, 100% of the income earned by your company is taxable here. Even if you move abroad Uncle wants his cut. Though, this article will help you minimize that tax bill.

This article is focused on the Panama tax rules for those living, working, or investing in Panama. If you retire to Panama, but don’t buy real estate there, then you should have no Panama tax issues.

Introduction to Panama Tax

Panama taxes its citizens and residents on income earned within its borders. You, the American citizen, become a Panama tax resident if you live in Panama for more than 183 days within a calendar year. If you don’t operate a business in Panama, or purchase real estate there, it’s unlikely their tax laws will affect you.

Panama has no wealth, inheritance or gift taxes. Therefore, it’s an excellent jurisdiction in which to form an international trust (called a Panama Foundation, but it functions under U.S. laws as a foreign or grantor trust). Such a structure will allow you to protect your savings and minimize U.S. estate taxes by facilitating transfers to heirs and moving assets out of your taxable U.S. estate.

Also, interest from bank accounts, Certification of Deposits, and most forms of investments are tax free. If you buy and then sell stock on the Panama exchange, no tax will be charged. No tax is due when you sell stock on a foreign exchange either, but the point here is that buying and selling stock within Panama, even on their exchange, does not bring you in to their tax system.

At this point, you might be wondering how Panama earns money. Well, residents pay tax on local income, corporations pay tax on gains derived from business transactions within Panama, and just about everything sold in Panama is subject to a 7% Value Added Tax (VAT). And, of course, they make buckets of money from the Panama Canal.

Taxation of Real Estate Transactions in Panama

Real estate transactions within Panama are taxed as capital gains. There is only one rate for such gains, 10%. No differentiation is made between long term and short term capital gains.

This Panama tax rate of 10% on the net profit from the sale is the general rule for real estate. You can also elect a 3% rate on the gross sale price. Here’s how it works.

Just like in the United States, you pay capital gains in Panama on net profit earned when you sell real estate. If you buy a condo for $250,000, put $25,000 of improvements in to it, and sell it for $300,000, your gain is $25,000 and your tax due is about $2,500 … simple enough.

* You will also pay a 2% transfer tax at the time of sale. This is based on the sale price or the assessed value, whichever is higher. Your transfer tax is increased by 5% for each full calendar year you hold the property.

The government ensures compliance with its tax laws by requiring the buyer to withhold 3% of the purchase price and pay that over to the tax authorities. You, the seller, file a return to claim a refund the next year. In the example above, the buyer would withhold 3% of $300,000, or $4,000, and you will file a refund for $9,000 – $2,500 = $6,600.

If this 3% on the gross sale price is lower than the 10% capital gains tax on the net profit, you may elect to not file a return. You have the choice of paying the 3% or 10% rate on the sale of real estate.

So, in the example above, if you bought the property many years ago for $20,000, didn’t make any improvements, and sold it for $300, 00, you would choose to pay the 3% tax of $9,000. The 10% tax on the net gain would result in a bill of $28,000.

VAT in Real Estate: I will conclude this section on Panama tax by noting that VAT applies to short term rental income. If you rent out your condo for a term of six months or less, you will pay 7% VAT, VAT doesn’t apply to rental contracts longer than six months.

Personal Income Tax in Panama

If you operate a business in Panama, work for a local company, have employees in the country, or draw a salary, you need to understand their personal income tax rules.

Panama’s tax code is much more efficient than that of the United States. They have only three tax brackets:

  • If you earn $0 to $11,000, you pay zero tax.
  • If you earn $11,000 to $50,000, you pay 15% on the amount owner $11,000 (that is to say, the first $11,000 is tax free).
  • If you earn over $50,000, you pay $5,850 on the first $50,000 plus 25% on the amount over $50,000. So, your Panama tax rate on a salary of $150,000 would be $5,850 + $25,000 = $30,850 less any deductions.

Each person is allowed a standard deduction of $800. Other allowed reductions include mortgage interest, charitable and political contributions, and unreimbursed medical expenses.

You’re not required to file a return if your only income is from salary (you have no capital gains, etc.) and you don’t wish to take any deductions other than the standard at $800. In that case, the employer withholds the required amount from each paycheck and no return need be filed.

If you wish to file a personal income tax return in Panama, it is due March 15. You may request an extension until May 15.

Employment Taxes in Panama

If you have employees in Panama, be ready to pay significant employment taxes. Social Security and employment taxes are a primary revenue sources for Panama and a reason they are willing to offer corporate tax deals … to increase employment and employment taxes.

* Employment taxes in Panama are about 30% higher than United States. However, the cost of labor is less than 25% of major cities in America, so the employment tax expense is relatively minimal.

As the employer, you pay employment tax of 12% on wages. Also, you must withhold 9% from the employee. Therefore, total employment tax in Panama is 21%. This compares to 15% (self-employed) to 17% (with Obamacare) in the United States.

Also, you are obligated to pay a one month bonus to each employee each year. So, when you calculate costs per employee, you will take the base salary times 13 (not 12 months) and add 21% for employment taxes.

For example, if your employee earns $1,200 per month, they’ll cost you $1,200 x 13 months = $15,600 in salary and $1,872 in employment taxes.

Corporate Tax in Panama

The Panama tax rate on corporations is 25% compared to 35% in the United States. Panama taxes only local source income. There is no Panama tax on income from outside the territory, even if that money is deposited in to a Panama corporation and account.

Most of my readers will avoid corporate tax in Panama all together. It should only apply if you are selling goods or services to Panamanians. If all of your sales are done through the internet to persons in the U.S. and Europe, you may have no Panama source income.

Also like the United States, corporate income tax usually applies to money you leave in the company … retained earnings held by the Panama Corporation. If you do have Panama source income, you may be able to eliminate corporate level tax by withdrawing your net profits as salary. You will pay personal income taxes but avoid double taxation.

However, if you operate a “large” business within Panama, and your Panama source gross income is $1.5 million or more, you may be subject to alternate minimum corporate tax.

First, I note that corporations are taxed on their net business income. You may deduct salaries, as well as all “ordinary and necessary” business expenses … just as you do in the United States.

However, if you gross more than $1.5 million in Panama source sales, you will be required to pay minimum corporate income tax of 4.5% on those gross sales.

* Another way to express Alt Min tax in Panama is that your large business pays tax on local sales minus 95.5%. If your local sales are less than $1.5 million, you are exempt from Alt Min tax in Panama.

Let’s say your Panama Corporation earns $2 million in local income. It’s your first or second year of operation and your deductible expenses are more than $2 million … so you have a tax loss for the year. Panama Alt Min tax comes in and requires you to pay 4.5% on $2 million, or about $90,000 in corporate taxes.

That means you’ll pay at least 4.5% on local sales in a large business. If 25% on net profits results in more tax being due than 4.5% on gross sales, then you pay Panama tax at the 25% rate.

In order to deter untaxed transfers between Panama corporations and any other tax shenanigans to minimize tax on local source income, Panama taxes/dividends, loans and advances. A 10% withholding tax applies to dividends between corporations on income derived from local sources. Also, a 10% tax is levied on loans or advances to corporate shareholders. If these transfers are done in a structure involving bearer shares, a 20% withholding tax (rather than 10%) applies.

If you can prove that the income being transferred is foreign source (earned in transactions outside of Panama), these taxes do not apply. In that case, there is no withholding on dividends, loans or advances.

* These corporate tax laws apply to companies operating within Panama City. Special rules apply to businesses within the Colon Free Zone, City of Knowledge, Panama Pacifico (my favorite tax free region), or any of the other free zones within the country.

* Special rates may apply to corporations with local gross sales of less than $200,000. These “small” businesses pay a lower blended personal/corporate rate.

Taxation of Americans in Panama

There is no Panama tax on bank interest, CDs, U.S. retirement distributions, or income derived from sources outside of Panama. Therefore, most of you won’t be subject to Panama tax unless you invest in local real estate.

Unfortunately, Uncle Sam wants his cut no matter where you live and/or invest. Though, you do have tools at your disposal to reduce your U.S. tax bill.

First, you can make investments in Panama through your U.S. retirement account. By forming an offshore IRA LLC, you can defer U.S. tax in a traditional IRA or eliminate it all together in a ROTH IRA.

Next, if you live in Panama, and will qualify for the Foreign Earned Income Exclusion (FEIE), you can draw a salary from your active business of about $100,000 per year ($200,000 husband and wife), retain the balance in your Panama Corporation, and pay no U.S. tax. You will find a number of articles here on the FEIE and operating through an offshore corporation to reduce or eliminate U.S. tax.

If you are living in Panama, you might bill your customers through an offshore company formed in another jurisdiction. When your sales are to persons in America and you are living in Panama, bill through a corporation in Belize. Then, draw a salary of up to the FEIE from that Belize Corporation to eliminate Panama employment taxes.

* This only works for you, the U.S. person living in Panama. Don’t try it with Panamanians or you might find yourself in trouble with the local authorities.

I hope you’ve found this Panama Tax Review helpful. If you have any questions, or would like assistance moving you or your business to Panama, please give us a call or send me an email to info@premieroffshore.com.

Panama 2015
Christian Reeves

Panama 2015 and Beyond

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Panama 2015 looks to be a great investment  with continued growth of 7%.  While the tiny economy will face a number of challenges, chief among them is competition to its canal, expect solid returns to continue.

First, a brief mention of Panama’s 2015 banking sector.  Significant amounts of wealth will continue to flow in to Panama as crisis hit and Venezuelans look for investments, work, shopping, and a safe haven for their cash.  In fact, I expect wealth will continue to be transferred from a number of Latin American nations in the coming years.  Venezuela, Colombia, and Mexico all seek safety and security in Panama.

Basically these investors are wanting the stability of a U.S. dollar based economy without the risk of putting their money in the United States.  Where it was once easy for foreigners to open accounts here, FATCA has made it more risky.  While information flow has been one way (in to the United States), expect that to change as our neighbors to the south get tired of the hypocrisy.  Beware of this concern; capital will leave Miami for Panama in 2015.  Expect this to continue in 2016.

In 2014, public investment of $19 billion was made in Panama.  This is an enormous amount considering their GDP for this year will be $24 billion.  Of this amount, $5.2 billion was put in to the Panama Canal.

As a result, we’ve seen an average growth rate of 8% over the last few years.  It has brought about a new metro rail, a giant causeway (one of my favorite areas to hang out in Panama), and hundreds of new skyscrapers.

Now, here’s the bad news.  The Panama Canal has been fraught with disputes.  First, a billing problem slowed down the project by one year.  The European firms were billions of dollars over budget and Panama refused to pay for the overages.  Once this was settled, the workers went on strike.  At the time of this writing, it is expected the project will resume within the week.

Next, there has been no urban planning in Panama.  The building boom in Panama City is all about speed and graft.  As a result, traffic is out of control and no parking was allotted in many areas.  Just try going near the banking district on a workday.

Another urban planning issue is that many of the buildings have water flow problems.  When it rains, they flood.  For example, when the center piece of Trump Towers opened, rain stranded the President and those attending the grand opening festivities.

I would like to note that Panama is not a desert climate!  They have two seasons:  rainy and rainier.  So, when urban planning fails to account for the daily downpours, there’s a problem.

Panama will continue spending big on development and improvements.  For 2015, Panama will invest $3 billion and should see growth of about 7% (1% less than in previous years).

Wile I expect the economy to remain strong, I bet some real estate will lag behind.  While it’s true that many international persons are flowing in to Panama, there is also a lot of capacity coming online.  I look for appreciation of 5% to 8% depending on where you invest in Panama City.  Focus on San Francisco (a region of Panama City) and the like for the best returns.  Avoid Trump and Punta Pacifica.

I also believe the long term outlook for Panama is strong.  The primary limiting factor in business growth is a lack of educated workers and English speakers.  All of the new shiny towers need workers that speak English.  If schools begin turning out a quality work force even faster than they do today, the sky’s the limit for Panama.

In addition to the need for more workers, there are issues surrounding politics and the Canal.  The current administration, which came in to office a few months ago, is proposing price fixing for groceries.  The influx of high net-worth individuals is pushing prices beyond the reach of average Panamanians and the government is considering Venezuelan type price controls.

A longer term risk factor is the Panama Canal… the pride of this nation which was returned by President Carter and signed over by President Clinton.

The current expansion is the first in over a century.  The Canal opened August 15, 1914 and might be finished this year or in 2015.

Panama has upgraded its locks to allow ships carrying up to 13,000 containers.  Before the upgrade, size was limited to 5,000 containers.  However, the largest ships today are at 18,000 containers, and expected to reach 22,000 in the years to come.

And there is now competition to the Panama Canal.  The Suez Canal in Egypt completed its expansion (the first in 145 years) and can handle ships of all sizes.  Piling on, Nicaragua plans a $40 billion canal of its own.  This one, funded (of course) by China, could put significant pressure on Panama’s margins because it would not be limited by locks or ship size.

The Suez Canal was a more costly route because it’s a longer journey from Circe (further south), times are changing.  Significant manufacturing has moved out of China to its southern neighbors.  From these ports, the Suez Canal is either more efficient, or just as long a journey, as Panama.

Like Nicaragua, the Suez Canal is at sea level.  Therefore, no locks are required and any future expansion (widening) can be done more efficiently than in Panama.  Expect Suez to allow for any and all cargo ships while Panama is limited to those holding 13,000 or fewer containers for decades to come.

All of this is to say that the Panama Canal will need to compete on price in the years to come.  Though, I remain strong in my short term and long term outlook.  I expect education to keep pace with demand and for this to push businesses like mine and your forward.

For information on moving to or incorporating in Panama, please give us a call or send an email to info@premieroffshore.com.

IRS Criminal Investigation
Christian Reeves

IRS Criminal Investigations on the Rise

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If you thought an IRS audit was bad news, just wait until the IRS agents with guns come and take you down.  The IRS Criminal Investigation Division, or CID, can seize your records, tap your phone, spy on your emails, and treat you like a major criminal – all for failing to pay up.  The IRS CID has the ability to take everything from you… including your freedom.

Once indicted, you have a 98.5% probability of going to jail.  The average sentence is 27 months.  And these weapons of mass destruction are being turned on all high net worth Americans, not just those with offshore accounts.

Under President Obama, the wealthy are more likely to come under criminal investigation.  The IRS Criminal Investigation Division (CID) has increased referrals for prosecution by nearly 40% under this President and I expect this number will double (to an 80 – 100% increase) before his term is over.

Just as the IRS targeted conservative fund raising organizations, they are now being accused of hitting wealthy Americans that “fit the mold” of Republican donors.  Many, such as Grover Norquest of Americans for Tax Reform, claim that some of these attacks are political assassinations meant to cut off money flow to rivals.  That the IRS is targeting Republican donors for criminal prosecution.  Others have suggested that its wealthy conservatives who are the big fish each IRS CID agent wants to mount on his wall.  That it’s open season on the wealthy in America.

Here are the stats:  The IRS CID recommended criminal prosecution in 4,201 cases last year, an increase of 38% from 2012.  The Department of Justice indicted 2,010 of these referrals.  Expect these numbers to increase during the remainder of Obama’s term as the IRS CID and DOJ are hiring as quickly as possible.

Let me give you a little background.  Just 10 years ago, no one other than drug dealers and money launderers were charged with offshore tax crimes.  These laws, and their draconian penalties, were intended to target dangerous individuals who couldn’t be taken down otherwise.  Think Al Capone and that ilk.

Tax preparers and lawyers had never heard of what is now the IRS’s primary weapon: the Foreign Bank Account Report (FBAR), though it had been a law on the books for decades.  There was no effort to criminalize most forms of tax planning and offshore tax matters were civil cases, just like traditional IRS audits.

That is, until the IRS learned how profitable putting Americans in jail could be!

From 2006 though 2008, the IRS Criminal Investigation Division waged an all out war on offshore accounts.  The Swiss bank UBS eventually fell and released the names of 3,000 of its clients, who immediately became targets of the CID.  So far, the IRS prosecuted about 550 of these individuals.  They selected one or two from each state to maximize the news cycle impact…to make sure their press releases got on every news cast and in every paper in the country.

* Eighty percent of the press releases just happen to come out in the weeks before April 15. Are they criminals or pawns in the Government’s marketing campaign?

This strategy worked great for the IRS…maybe not as well for the pawns.  It brought in about $10 billion in new revenue from taxes, interest and penalties.  Thousands of high net worth individuals, as well as average citizens living abroad and those with extended families in foreign countries, all lined up to pay to avoid jail.

Very little of these payments came from actual targets of the IRS CID.  Those with offshore account went broke defending themselves and while in jail.  Most of the revenues came from expats and others with accounts that the IRS did not know of..which was the purpose of the campaign.

NOTE: If you have an offshore account and don’t want to become one of the pawns, please take a read through my post on the IRS’s Voluntary Disclosure Program.

After maximize returns on their attack on the Swiss banks, , the IRS Criminal Investigation Division and other government agencies turned their sights of fining just about any international bank they could find. They quickly learned that they could fine banks just about any amount of money and get paid.  This brought in a few more billion and the free for all was on.  See my post on the $9 billion extorted from the French bank BNP Paribas.

IRS criminal investigations have been so profitable that the government is doubling down and hiring new gunslingers as fast as they can sign them up.  This also means that they will need to expand their number of targets and their case selection criteria.

As a result, the IRS is now targeting all wealthy Americans, not just those with offshore accounts.  Just because you have no international exposure, don’t think you’re safe from the new and more aggressive IRS CID.  Many tax matters that were once civil cases are turning criminal.  The IRS has found its targets are much more pliable, and willing to pay big fines, when they are at risk of going to jail for a few years.

It is possible that these cases are targeting high net worth Republican donors.  At least, that’s how it appears to lawyers and targets in the fight.  And, considering the IRS’s track record on targeting political rivals (Republican foundations and Gov. Perry to name two), it doesn’t seem to far fetched that they would use the criminal system to cut the purse strings of Republicans.

* The IRS Director Doug Sholman paid nearly 150 visits to the Obama White House from 2010 to 2012, far more than any other IRS director.

To put your mind at ease, or to increase the pressure, depending on where you land on the financial spectrum, here is a summary of your IRS audit risks.

For most working families, the probability of going before the great collector is slim.  If you earn $50,000 to $100,000 per year, you have only a .06% chance of being audited.

For those with incomes of $100,000 to $1 million, it varies from 1% to about 5%.  If you are self-employed and filing a Schedule C, you are at the higher end.  A W-2 with no charitable contributions or capital gains and you are near the bottom.

Now for the bad news.  If you earn over $1 million, your audit risk jumps to 12%.  If you reach the top of the heap and have an income of over $10 million, you have a 25% chance of facing down a very aggressive IRS agent.

Note that a 25% chance of being audited means you will likely be under the microscope three out of every four years.  An IRS exam typically covers three tax years.  So, you have a one in four chance of being audited and, once selected, they will analyze three years of returns.

It’s these higher net worth individuals who have the highest likelihood of criminal persecution.  Of those earning less than $250,000, the risk of a criminal charge is minimal.  Eighty-five percent of the cases brought are filed against those earning $1 million or more.  Though, the UBS cases were an exception because the government needed targets in each state.

Once you’re targeted by the IRS Criminal Investigation Division, you have a nearly 50% chance of going to jail.  The DOJ prosecutes about 50% of the cases referred by IRS CID (at least until they hire more staff) and 95% of these settle.  Also, the average time to complete a tax fraud case is 2 years and the average jail sentence is 27 months.  That’s followed by 3 to 5 years of probation.

While the case is going on, you must report all of your comings and goings to Pretrial Services and submit financial statements each month.  Most find it near impossible to work while on Pretrial release…especially those with small businesses or the self-employed.

As a result of their finances and businesses being destroyed in this process, many families don’t survive.  About 1/3rd are divorced by the time the target gets out of jail.

The U.S. government is going all in on criminal prosecutions by the IRS CID.  It is by far the best returning division of the IRS and you can expect it to continue bringing in the cash in the years to come.

Will Anyone Stand Up?

The government fired the first shots in the war on financial privacy with the Patriot Act in 2001.  As we all cowered under our desks in fear of another terrorist attack, our freedoms went out the back door…and no one said a word.

The U.S. extorted billions from Swiss banks and ruined the lives of 550 of its citizens, all in the name of increased revenue.  Americas were used as pawns in the tax game and no one stood up.

Then the U.S. turned offshore bankers in to unpaid IRS agents with FACTA.  As a result, Americans are persona non grata at most banks around the world.  Yet, no one said enough is enough.

Now that the IRS CID is targeting the wealthy, possible for political gain, will anyone step up and say enough is enough?

When the IRS knocks down your door with men in military style clothes and weaponry, will anyone resist?

When it’s you handcuffed on the floor with your wife crying and your kids screaming in the corner, being restrained by wanna-be commandos in flack jackets and guns drawn, will anyone come to your aid?

If you have unreported offshore accounts and would like to know your options, please email us at info@premieroffshore.com. We can review your situation and refer you to an experienced attorney if necessary.

If you are thinking of living, investing, or doing business offshore, and need an international tax and business consultant who will keep you in compliance with the US government, give is a call at (619) 483-1708.

U.S. Passport
Christian Reeves

Should I Give My Son a U.S. Passport?

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My son Timothy is nearing his first birthday and our household is filled with debate and discord.  Should I give him a U.S. passport?  Is a U.S. passport his birthright or a curse?  Should my son identify as a U.S. citizen, a Panamanian, or both?

Allow me to give you a bit of background.  I am an expat American living and working in Panama.  I spent 15 years in the U.S. as a tax lawyer and now call Panama home.  Timothy was born in Panama, his mother is Panamanian, and he holds a passport from Panama.  By filling out a few forms he can become a U.S. citizen and become subject to the laws of my home country.

As a Panamanian, he has no trouble visiting the U.S.  We travel to San Diego often to see his grandparents.  He and his mother both have 10 year U.S. visas and I don’t expect travel to become an issue.

A Panamanian passport is a solid travel document that gives him access to most countries.  Had his mother been Cuban or Venezuelan we wouldn’t be having this debate…he’d have a U.S. passport.  Likewise, if his mother was from the U.K. or an EU country, we wouldn’t have an issue…I wouldn’t burden him with U.S. citizenship.

My position on second passports for U.S. persons is that they provide wealth and lifestyle insurance.  If you hold a second passport, you have the ability to give up your U.S. citizenship, stop paying U.S. taxes, stop reporting your income and assets as an expat, and become a more complete part of whichever country you have decided to make your home.  You might pay a significant “exit tax” but you will be free and international banks will no longer report your transactions under the Foreign Account Tax Compliance Act (FATCA).

While that’s all fine and good for adults, what about a child who’s just starting out in life?  Do I have a right to impose my biased worldview (all be it based on experience) by refusing him U.S. citizenship?  Is U.S. citizenship something to be valued or a burden that he will have to carry in the years to come?  Am I helping him to walk in my footsteps and to benefit from my experience?

Being the logical sort I made a list of pros and cons of giving little Timothy a blue passport:

For

  • Easy access to U.S. schools,
  • Can live in the U.S., as I did,
  • College scholarships and aid are available to U.S. citizens
  • Work in the United States during and after college,
  • Right to renounce U.S. citizenship if he chooses… gives him the right to decide when he’s of age,
  • Gives him a choice in where to live, go to school, and in the lifestyle he finds to his liking.  My choice is to live in Panama and vacation in Colombia, but I spent 35 years in the United States.  Without citizenship, Timothy wouldn’t have that opportunity.

Against

  • The U.S. could prevent Americans from renouncing their citizenships or make it more difficult.  Since FATCA, expatriations have quadrupled and are expected to double again in 2015.
  • U.S. citizens are taxed on their worldwide income, no matter where they live.
  • U.S. citizens are a part of the U.S. tax, legal, and court system.  He will always be subject to the whims of U.S. judges and politicians.
  • U.S. citizens can be forced to return at any time for any reason.
  • A risk of falling in to the U.S. inheritance and estate tax system if parents were to pass away unexpectedly.
  • Costs of compliance with U.S. tax laws of about $2,500 per year on average.
  • Costs of $10,000+ to expatriate.

* If you can think of arguments on either side, please post them as comments.  This is obviously an area near and dear to my heart.

As I write them out, it seems most of the benefits apply through Timothy’s college days and then come the risks and costs of being an American.  It becomes time to pay the piper, as it were.

As long as the laws don’t change, one might come to the conclusion that he should hold U.S. citizenship through college and then renounce if he so chooses before making any real money.

Of course, the risks of a law change are significant.  Also, the risk that we as a family put off expatriation too long and he gets caught up in legal troubles or tax problems with the great collector is a concern thousands of expats, especially Canadians with U.S. parents, are dealing with today.

Let me take a minute to explain my thought process.  We American expats wear a scarlet letter A on our chests, which is now stamped on any financial transaction or bank account application we touch. The majority of international banks, brokerages, insurance providers, and mortgage lenders don’t want to have anything to do with us.  Since FATCA turned foreign banks tellers into unpaid IRS agents, we are persona non grata in many corners of the world.

And this will impact Timothy’s early life.  It will limit his ability to get a “starter” job at most companies in Latin America.  Almost no one is willing to hire an American citizen these days.

* Of course, as his mother points out, he can always work here at Premier!

Also, being an American means that the U.S. government will collect massive amounts of information on his life and financial history.  Is it right to allow the American authorities to invade his privacy from day one?  Is it preferable to keep him away from his unscrupulous and nosy Uncle?

And these issues extend to Timothy’s mother.  Spouses of U.S. citizens with shared ownership of assets are subject to FATCA’s disclosure requirements.  Because she chose an American (me), all of her personal data and banking information are likely to be shared with the United States.  This may currently applies to joint accounts, but I expect Panama to take the conservative or CYA approach of sending all data.  They will report on their own citizens if there is any risk of running afoul of the U.S. authorities.

Finally, if I don’t give Timothy a U.S. passport, is he at risk of being caught up in the U.S. tax system anyway?  Will banks only consider clients with U.S. addresses or passports and send them to the IRS?  Will they take the extra step of doing a forensic analysis of everyone’s account activity, legal status, and ancestry?

When you look at FATCA, a complete analysis of all customer data is what the law requires.  How far the banks will go is to be seen.

So, there’s my dilemma.  Do I give my son a U.S. passport?  Our household is greatly divided on the issue.  Your comments or suggestions are welcome.

foreign earned income exclusion 2015
Christian Reeves

The Foreign Earned Income Exclusion 2015

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The Foreign Earned Income Exclusion 2015 has finally hit six figures. The FEIE for 2015 is $100,800, up from $99,200 for 2014. The FEIE is the best way to minimize your US taxes as an Expat and the most important tool in your tax kit.

This means that each American living and working abroad, who qualifies for the Foreign Earned Income Exclusion in 2015, can earn up to $100,800 in salary without paying personal income tax. If that salary comes from a US employer, then you still pay social and employment taxes (7% deducted from your check and 7% paid by your employer). If you are self employed and don’t have a corporation, then you pay self employment tax at 15%.

Basically, if you have a US structure, or are self employed without a foreign corporation, you pay 15% tax + Obamacare and other charges on your 2015 salary. The FEIE only cuts out your personal income taxes.

If you work for a foreign employer, or you operate your business through an offshore corporation, then you can avoid this 15%+ tax. It is possible to use the Foreign Earned Income Exclusion 2015 with an offshore corporation and pay zero to Uncle Sam on income of $100,800. If a husband and wife both operate the business and qualify for the FEIE, you can take out $201,600 in salaries tax free!

Next, if your profit exceeds $100,000 or $200,000, you can retain earnings in the offshore company and defer US taxes on that income. This tax deferal is a major benefit of living and working abroad for high net worth business owners.

Let’s say your net profit is $300,000 in 2015. You and your wife take out $200,000 in salary using the FEIE. This leaves $100,000 in untaxed profits. If you hold this money in the offshore corporation, you can defer US tax until you take a distribution. If you draw it out as salary, commissions, dividends, or in any other form in 2015, you will pay US taxes at about 32% (Federal).

For a 100+ page book on expat tax issues and how to maximize the FEIE 2015, please join my mailing list.

My posts on the Foreign Earned Income Exclusion for entrepreneurs include:

Finally, if you’re a glutton for punishment, I recorded a 3 hour dissertation on the Foreign Earned Income Exclusion for the Overseas Radio Network. See my ORN page.

I hope this post has been helpful. Please send an email to info@premieroffshore.com if you have questions about forming an offshore corporation or maximizing the FEIE as an entrepreneur.

Foreign Assets
Christian Reeves

Foreign Assets and FBAR Reporting

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Ever increasing U.S. reporting obligations on Americans living, working, and/or investing abroad, make it difficult to keep up.  This is a review of your foreign assets and FBAR reporting requirements.  Foreign assets are reported on IRS Form 8938 and the FBAR is sent to the Treasury on FinCEN Form 114 (Report of Foreign Bank and Financial Accounts).

These two forms are quite similar, and many are confused about when and why to file each.  I note that you must file if you meet the reporting threshold.  Basically, the IRS wants you to send in the same information twice… so they know exactly where your assets are and how they are invested.

Who Must File Foreign Assets and FBAR

The Statement of Specified Foreign Assets must be filed by U.S. citizens, resident aliens, and some non-residents if your reportable foreign assets are at least $50,000 on the last day of the year, or $75,000 at any time during the tax year.  Note that higher levels apply to married couples.

The FBAR is required from any U.S. person, including citizens, resident aliens, trusts, estates and U.S. structures that have foreign bank account(s) with at least $10,000 at any time during the year.  So, if you have a foreign account with $11,000 for just one day, and the rest of the year your balance is $5,000, you still must report.  Also, if you have 11 accounts, each with $1,000, you have $11,000 offshore and thus must report all of these accounts on your FBAR.

Foreign assets you own are reportable on Form 8938.  This is to say, if you would need to report income or gains from these assets on your U.S. return, you must report their existence on Form 8938.

As for the FBAR, an interest in a financial account means you have signature authority over the account or you are the beneficial owner of the account.  If you have a right to tell the bank what to do with the funds, how to invest the cash, or instruct them to send a wire, you are the signor and need to report.

You’re the beneficial owner if you’re the owner of record or holder of legal title.  For example, if you have $100,000 deposited in to an account, and then assign a nominee account manager, you are the beneficial owner of the account because the funds belong to you.  The signor and nominee in this case is acting on your behalf.

What is Reported as Foreign Assets and on the FBAR

When you are reporting foreign assets or the FBAR, you must report the maximum value.  For the FBAR, you report the highest value in the account during the year.  If you are holding funds in a currency other than USD, you should use an average FX rate, or convert on the day the account balance is at its high water mark.

This means that the amounts reported on your FBAR might be artificially inflated by transfers, one time deposits, etc.  For example, you have $100,000 in account A, and transfer that to account B, and then to account C, all within the same year.  Your FBAR will show three accounts, each with $100,000.  The government won’t know whether you have $300,000 or $100,000 offshore but it allows them to maximize failure to report penalties.

On the Foreign Asset report, you’re to list the maximum value of each foreign asset, which includes bank and brokerage accounts, and certain other assets.  You should report the fair market value in USD for each account and asset reported.

* Foreign Account: Is any bank or brokerage account at a financial institution outside of the United States (see below).  For the FBAR, if the bank has a branch in the U.S., but your account is held at a foreign branch, it must be reported.  If you have an account at Citibank, Panama, you have a foreign account and need to file the FBAR.

The foreign asset report is due with your U.S. tax return, including extensions.  So, Form 8938 is usually due on April 15 or October 15.  The FBAR is due by June 30 and no extensions are available.  If you file your return on April 15, you should submit your FBAR at that time.  If you get an extension for our 1040, your FBAR is still due by June 30.

The FBAR should be filed online through the FinCens BSA E-Filing System.  Please see my article on how to file this form electronically.

Foreign Reporting Penalties

The penalties for failing to file the foreign assets and FBAR forms are severe… and can include criminal charges.  There are many Americans sitting in jail for not telling their Uncle where their assets are.  Some also

IRS Levy
Christian Reeves

UK to follow IRS Levy Rules

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The U.K. tax authority to allow IRS Levy type actions. If you owe the HMRC, they now have the authority to seize your bank account and raid your assets, just like an IRS levy.

Now, it’s no surprise that the U.K. is following in the footsteps of the mighty IRS levy. It’s just interesting that it took them this long to do so.

I also find it interesting how strong the reaction against what we Americans think of as “normal” has been in England. For example, the primary body of accountants said that the HMRC had a record of making mistakes and should not be allowed to levy without court approval.

In its statement, the HMRC said that these regulations bring it in line with other tax authorities which already have the power to take money debts directly from an individual’s account, just like France and the U.S. Of course, advocacy groups respond saying the U.S. should not be regarded as a role model of what is right and just … just the opposite in fact.

Once interesting caveat of these new “draconian” laws that match the IRS levy system, is that the UK will leave 5,000 pounds in the person’s account so they can afford to pay for basic necessities. If the account holds 15,000, and the debt is 20,000, the U.K. gets to take 10,000.

The IRS levy system has no such requirement. So long as the U.S. IRS can find your account, they can empty it up to the amount of the alleged debt, including interest and penalties.

According to the U.K. Low Incomes Tax Reform Group, these new laws will allow the tax authority to run roughshod over low income persons who prioritize necessary payments over taxes.

“To allow the HMRC to raid their bank accounts without safeguards or recourse to the courts would be to flout the rule of law in a manner unworthy of a public service body. It is not the same as seizing physical goods, it is depriving the debtor of the very means to live. Given the way the HMRC continually fails to deal with taxpayers properly or fairly is hugely worrying. To introduce such draconian measures without proper safeguards could well lead to an abuse of power.”

This is exactly what we Americans have been dealing with for decades … a government agency who offers horrendous customer service, fails to deal with individuals fairly, and can levy your personal and business bank accounts at will … often as the first line of attack and then they negotiate a payment plan. The IRS shoots first and asks questions later.

If the U.K. wants to see what happens when you give one government agency unlimited power to attack its citizenry, just look over the pond at the IRS levy system.

Chile
Christian Reeves

Chile’s Tax & Economic Climate

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The republic of Chile is one of the most business friendly nations on earth… as tax and business efficient as it is long.  Chile’s focus on high-tech start-ups has brought a wealth of talent and business to this nation that is vying to be the Singapore of Latin America.

Chile is one of the longest countries on earth, spanning the southern portion of South America.  It borders Argentina (primarily), as well as Peru and Bolivia.  Its capital city Santiago boasts an ever growing population of 6 million and Chile has a total population of nearly 18 million… which is several times larger than my Panama at around 3 or 4 million depending on who you ask.

Chile is one of South America’s most stable and prosperous nations, leading Latin America in a number of important categories:  human development, business and economic competitiveness, income per capita, economic freedom and a low perception of corruption.  All of these combine to make Chile a dynamic and business friendly nation.

The two criteria I’d like to focus on are competitiveness and income per capita.  As to income, it is just over $20,000 on average and nearly double many nearby nations.  While this means labor is not as cheap as it is in, say, Panama, it also means that the work force is better educated, better trained, and more efficient.

Chile is especially competitive in technology start-ups and export.  Exports to Asia and the U.S. account for 60% of the nation’s economy and Chile is pushing hard to become the center for tech start-ups in Latin America.  For more information on this, please see my previous post on Chilecon Valley.

As a result, the once challenged Republic has become one of the most dynamic nations in the region.  They’re now listed as a “high-income economy” and a “developed country” by the World Bank (as of July 2013, so a recent development).  It is also the nation with the highest degree of economic freedom in South America, and 7th world wide.

As I look around the globe, I believe Chile to be one of the best places to form a new internet based business, or any business focused on high quality labor… rather than call centers and repetitive tasks.

And Chile’s economy has prospered, even during the recent downturn.  Real GDP growth has been 4% to 5.7% over the last decade and the national debt is only 3.9% of GDP.  It seems like many of Chile’s northern neighbors could learn a thing or two about how to run a country.

Driving this growth is a business friendly tax system which is compatible with the U.S. code and the Foreign Earned Income Exclusion.  Basically, you can set up a business and operate tax free for 3 to 6 years before needing to deal with the local tax authorities.

First, Chile taxes local source income at 30%, where local means products and services sold in Chile.  If you sell to customers outside of Chile (in the U.S., for example), this is foreign sourced income to Chile and not taxable in certain cases.

* For U.S. tax purposes, it doesn’t matter where your customers are located (in the U.S., for example), only where you and your business are based.

Next, wages you take out of a Chilean corporation are taxed at 0% to 40%, with the higher rate applying to a salary of $12,500 per month.  Though, you are allowed to be a resident of Chile and draw a salary from a foreign corporation, which would not be taxed by Chile.

So, if your income and sales are made through a Belize offshore corporation, you draw a salary of $99,200 per person from that company, and qualify for the U.S. Foreign Earned Income Exclusion, you won’t pay any tax in Chile or the United States.  You’re allowed by both the U.S. and Chile to retain earnings in excess of this amount in the offshore corporation and will only be taxed when you take a distribution.

I have assumed you are familiar with the FEIE.  If this is new to you, or you are wondering what I am on about, please take a few minutes to read one of my more detailed posts on the topic.

As I said above, foreigners in Chile are taxed on international income after they have been tax residents for 3 or 6 years (the standard period of 3 years can be extended to 6 by filing a few forms.).  During this time, the FEIE model works no matter how much you earn in salary, capital gains, or from any other source outside of Chile.

Once your 3 or 6 year honeymoon period is over, then you will pay tax in Chile if your foreign salary (from a Belize company) is over $153,000.  So, the U.S. FEIE gives you $99,200 in 2014 and the equivalent Chilean tax tool gets you $153,000, tax free.  This is why I say the tax code in Chile is designed to work seamlessly with the U.S. system.

Here are a few more tax benefits of living, working and doing business in Chile.  For some of you, they may greatly outweigh the FEIE.

–        Gaines from the sale of shares in a Chilean company held for more than 1 year are tax free.

–        Gains from publicly traded companies are tax free.

–        The sale of real estate is tax free (no capital gains, but VAT will apply).

–        Reimbursements from housing, travel and all other expenses paid by your employer are tax free.  Allocations from you employer are taxable as local salary, so some planning is advised.

If you are operating a business through a Chilean corporation, and have local profits, your corporate tax rate is 20%.  Distributions to you are taxed at 35%, but you get a credit for the 20% tax paid by the entity… which should net to about a 15% personal income rate on corporate distributions.  In the U.S., this would be 30% at the corporate level and then 40% + your state’s tax at the personal level.

Those of you who follow my columns know that Premier is based in Panama City and San Diego.  If I were starting over, or about to launch a new division (which we are doing right now), I’d give serious consideration to doing that in Chile.

The climate of Chile is quite similar to California, if not the mirror opposite in terms of season.  With everything from a dominant Pacific coast to some of the world’s driest desserts, Chile has just about all of the ecological diversity as did California 75 years ago.  Chile’s summer is from December to February, autumn is March to May, winter, June to August and spring, September to November.  Temperatures in the valley surrounding Santiago can get up there, but nothing compared to California’s Central Valley or El Centro areas (temperatures in parts of CA can be 115°F several times a year, and I’ve had the joy of 120°F on occasion).

When thinking about where to place a business, you need English speaking talent and telecommunications infrastructure.  Chile has the most advanced telecom system in South America with an advanced microwave radio relay facility and its own satellite system that includes 3 earth stations.  That is all to say that Chile’s telecom system doesn’t rely on the U.S. (NSA).

As of 2012, there were 3.3 million land lines and 24 million cellular phones, with all of the latest and best technologies available in Chile.  According to the International Telecommunications Union, 62% of the population uses the internet, making Chile the country with the highest internet percentage in South America.

So, from my previous article, we know that Chile has the people and government sponsored programs to support your business.  They also have an efficient tax system and the telecom infrastructure you require.  Add to this the fact that Chile is focused on freedom and privacy, and I’m sold.  Chile is not a banking center like Panama, and thus not as beholding to the U.S. and its push to control the world’s financial transactions.

* For more information on nations dependent on U.S banking and the dollar, see my posts on France and Russia’s attempt to replace the U.S. dollar and America’s $9 billion attack on BNP Paribas and FACTA.

If your business model requires the lowest cost labor available, such as a call center, then Chile might not be for you.  If you need higher caliber tech oriented employees, strong IT and telecom systems, and a larger market than is available in Panama, you should consider a look at Chilecon Valley.  If you’re looking to diversify out of the U.S., Panama and Chile are both strong contenders… but Chile is several more steps removed from Uncle Sam in terms of financial and personal freedom when compared to Panama.

I hope you have found this series on Chile interesting.  For additional information on moving your business out of the United States, please give me a call or send an email to info@premieroffshore.com.  We will be happy to work with you to structure your affairs in an efficient and U.S. tax compliant manner.  All consultations are confidential.

IRA Gold
Christian Reeves

IRA Gold Rules

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Yes, you can take your IRA offshore and buy IRA gold… so long as you follow the rules and buy the right kind of gold.  If you will invest in IRA gold, this brief post is a must read.

Here are the basics of buying IRA Gold:

First, if you wish to hold IRA gold outside of the United States, you should form an Offshore LLC, invest your retirement account in to that structure, and then make your investments.  This give you control of your retirement account(s) and you are the only signor on that foreign bank/investment account.

Next, you must follow all of the same rules as an onshore IRA manager.  Luckily, the rules for IRA gold are quite simple.

Your offshore IRA may invest in physical gold.  This means, you can buy gold bullion, nuggets, or any other type of precious metal allocation you like.  IRA GOLD DOES NOT INCLUDE COLLECTIBLE GOLD COINS!

If you buy IRA gold, you must buy physical gold that is valued on its gold content.  You may not buy coins that have value over and above their gold content.  IRA gold does not include collectibles.

The only gold coins that I am aware of which you can purchase in an IRA are American Golden Eagles.  These are priced at around $140 for their gold content and have no value as a collectible.

Of course, my recommendation is to hold physical gold, not coins, in an offshore vault in Panama or Switzerland.  I also suggest you avoid paper gold, which provides very little protection (hedge) against catastrophic events.

I hope this post on IRA Gold is helpful.  We do not sell gold, but will be happy to direct you to offshore experts.  For more information, please send me an email to info@premieroffshore.com.

Buy the Alibaba IPO
Christian Reeves

Should I buy the Alibaba IPO?

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The largest IPO in the history of the market is coming.  Alibaba, a Chinese company, is set to go public on the U.S. exchange.  The transaction will break all volume and valuation records.  Alibaba is a combination of Google, eBay and Amazon, and dominates the Chinese market.

The question is, should you jump on the bandwagon and buy the Alibaba IPO?  I say no way.  Here’s why… all without citing one number, statistic, or ratio.

I believe you should buy what you know.  I also suggest you buy only where and when you have an advantage.  I bet that most of my readers have no advantage in the Alibaba IPO.  Therefore, none of you should buy the Alibaba IPO.

First, let’s talk about buying what you know.  Do you have any special or unique knowledge about Alibaba?  Do you have a better understanding of their products, financials and future than the other buyers, sellers, or those going short?  I suspect not.  When an IPO is as hyped as Alibaba, no average investor has a chance of standing out from the crowd.

More interesting is to buy only when you have an advantage.  I assume you’re not a founder of Alibaba.  Therefore, the only advantage you might have is being issued some of the original IPO stock.

If your broker gives you an opportunity to buy Alibaba at its issue price, by all means, jump on it!  Based on similar IPOs, such as Google, you’ll receive a 10% premium/returns.  (Oops, sorry about that.  A percentage snuck in to this post).

But, will you get any of the original issuance?  Probably not.  Big time IPOs are taken up by the brokerage firms.  They allow only their best (read, highest commission paying) clients to buy the stock and then flip it to the rest of us.  Unless you’ve been paying in to your brokerage firm’s coffers for years, you aren’t going to see a single share of original issue IPO stock from Alibaba.  Me and my e*trade account won’t even get a sniff.

And that gets me to buy where you know.  I assume you have not been living in China and don’t have a solid understanding of the market, culture, and business opportunities in that market.  Because you have no experience in China, you shouldn’t be investing in China.  If you have no competitive advantage, you’re just following the sheep and hoping for the scraps that the pros have left.

It’s this idea of buying where you know that drives all of my investments.  I’ve spent years in South and Central America, and have a good understanding of small pockets of a few cities in these regions.  Particularly, I have found deals in Panama City, Panama; Ambergris Cape, Belize; Santiago, Chile; Quito, Ecuador; and Medellin, Colombia.

Don’t get me wrong.  I am not saying that all of these cities offer deals.  I am suggesting that local knowledge will allow you to find deals in certain communities within these cities.

You may find your way in a different part of the world.  Maybe Puket, Thailand or somewhere in the Philippines will speak to you.  No matter where you search out your opportunity, we will all share one important component:  We will be investing where we know, which is usually an area we enjoy.  A place where we are happy to spend the time to learn the nuances and culture.

So, should you buy the Alibaba IPO?  Only if you have special knowledge or access to an original issue. Otherwise, focus your efforts in a niche outside of the United States that’s small enough for you to build relationships and learn the region.

Panama foundation IRA Tax
Christian Reeves

Panama Foundation IRA Tax Review

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The Panama Foundation has been approved as the “owner” of a U.S. retirement account in Panama.  This means that, those who want to invest in Panama, have access to banks or brokerage services in Panama, or hold their retirement account n the most advanced asset protection and estate planning tool available, may now move their IRA to a Panama Foundation.

This article is a review of the U.S. and Panama tax laws as applicable to holding an IRA in a Panama Foundation.  I’ve included cites for those who want to delve in to the U.S. tax code or the ERISA statutes.

I begin by noting that the U.S. code sections that allow you to move your U.S. retirement account in to a domestic or foreign LLC are the same ones used to support the Panama Foundation.  The Foundation is conveyed in to a disregarded entity for U.S. tax purposes, just like an LLC, but retains its estate planning and asset protection components in Panama.

The Panama Foundation IRA structure we have created is designed around the U.S. domestic business trust IRA and the offshore IRA LLC.  In a business trust, the IRA makes an investment in to the trust by acquiring the “beneficial interest” of the trust.  Often the IRA will purchase 100% of the “beneficial interests” of the trust, much like it will acquire 100% of the “membership interest” of a limited liability company or shares of a corporation.  Essentially, the term “beneficial interest” is the title for “equity interests” in the business trust.

Using IRC § 4975 (e)(2)(G) and ERISA Reg 2510.3-101(b)(1), we have applied these rules to the Panama Foundation, which is a hybrid trust and corporate entity.  In the case of the Panama Foundation, the IRA account is the trustor or settler of the Foundation (i.e., the party who transferred assets to the Foundation) and the beneficiary (the party that holds the beneficial interest of the Panama Foundation).  Therefore, the IRA account is both the trustor/settlor and the only beneficiary of the Panama Foundation.

Limitations! 

In a traditional asset protection structure, we don’t usually recommend the Founder be the same “person” as the beneficiary.  In the case of a Panama Foundation IRA, this is required to maintain the tax preferred status of the retirement account under U.S. law.

Also, the Panama Foundation IRA we have created may not act as both the owner of your retirement account and as an asset protection trust for your after tax (non – IRA) money.  You may not mix after tax cash with your retirement savings.

U.S. Tax Classification of a Panama Foundation IRA

When you take your retirement account offshore, the objective is to (legally) eliminate all Federal and States filing obligations.  To accomplish this, the Panama Foundation IRA must have only one member/founder and be considered a disregarded entity for U.S. tax purposes.  This is quite different than a typical trust used for estate planning purposes or a Panama Foundation used for asset protection.

Specifically, a typical U.S. trust is governed under Subchapter J of the U.S. tax code § 641.  The Panama Foundation’s tax status is determined under the “check-the-box” Treasury Regulations.

Under Treasury Reg. 301.7701-4(b), a foreign entity is treated as a business entity and classified for under Treasury Reg. 301.7701-2.  Under this section, a business entity with two or more members is classified as either a corporation or a partnership.  A corporation is then defined to mean a business entity organized under a state or international statute which refers to the entity as “incorporated” or as a “corporation.”  For example, a Panama corporation is by default a foreign corporation, and not a partnership or trust, because it is “incorporated” under the relevant Panama code sections.  Likewise, any entity ending in Inc., A.G., Corp., Ltd., or a similar designation is assured to be a corporation for U.S. tax purposes.

Now that your Panama Foundation is classified as a disregarded entity, because it has only one owner of the beneficial interests and/or submitted the form to be classified as a disregarded entity, it will not have to file federal or state income tax returns.

State tax:  For example, every corporation doing business in California is subject to the minimum franchise tax of $800.  The same goes for any LLC formed in California.  But other entities, such as trusts formed outside of the State, are not required to pay this tax.  For more information, see the California Revenue and Taxation code and related regulations (§ 23038 and CA Admin Code Title 18 § 23038(a), (b)-1 and (b)-2.  As to the disregarded entity status in California, see Rev and Tax Code § 17942(a) and (b).

Plan Asset Rule

Once your retirement account has been moved to a Panama Foundation, and you are the manager of that Foundation, you’ll be required to follow the various Plan Assest Rules as defined in the ERISA Regulations at 2510.3-101(a)(2).  As the plan manager, you become a fiduciary of the IRA and must always act in the best interest of the account and the Panama Foundation IRA.

As a fiduciary, you are prohibited from borrowing from the plan, using the funds for your personal benefit, making certain prohibited investments, and engaging in any transaction at less than fair market value.  Basically, you are to manage the Panama Foundation for the benefit of the retirement account as a professional investment advisor would.  You should act as if the funds belong to someone other than you… which, in fact, they do… cash belongs to the IRA.

I would like to point out here that these rules apply to Panama Foundations and LLCs that hold a U.S. retirement account.  They are not applicable to a Panama Foundation used to protect after tax money (personal savings).

For more information on your rights and responsibilities, as well as a discussion of what you may and may not invest in, please see my Self Directed IRA page (top right of the menu).

Documents of the Panama Foundation

Where a typical Panama Foundation consists of a Foundation Charter and a Letter of Wishes, a Panama Foundation IRA is built upon a similar Charter and an Operating Agreement.  The Charter sets forth the purpose of the Foundation in general terms and the Operating Agreement (which is a private document not filed with the government) describes the IRA structure in detail.

The Foundation Charter is public record and filed in Panama.  The Operating Agreement is essentially a contract between you and the U.S. custodian detailing each party’s rights and obligations with regards to the IRA Foundation.  Collectively, these are referred to as the Foundation documents.

The Foundation documents work together to set forth the purpose of the Foundation, which is to make appropriate investments and manage the IRA funds it controls.  As such, these documents give the manager (you) the authority to open bank and brokerage accounts, purchase property, and spend money to improve or add to that property.

It is the Foundation Charter that gives the Founder the ability to enter in to the Operating Agreement with the retirement account administrator.  Then it is these documents together that allow you, the beneficial owner of the retirement account, to be appointed as the manager.

As the manager of the Panama Foundation IRA, you have the right to make investment decisions, as well as any changes to the Foundation Charter and Operating Agreement.  As such, you are taking the right and responsibility to make decisions away from the U.S. administrator.

The administrator agrees to transfer this authority to you, and you agree to indemnify him from any actions you take as the manager of the Panama Foundation.  In other words, the Operating Agreements says you must follow all applicable rules (such as the plan asset rule), and can make any permitted investment you like.  If you lose money, or break a rule and the IRA is penalized by the IRS, that’s on you… the administrator has no liability.  His job is to 1) invest the IRA in to the Panama Foundation and 2) file annual forms with the IRS.  For this, he will charge a few hundred dollars a year.  He doesn’t get to charge a fee or make a commission on any of your investments and has no liability if you make a bad deal.

As such, you will be the only signatory on the bank accounts.  The U.S. administrator will have no right to force the assets of the Panama Foundation be returned to the United States.  If you come under attack (litigation), then you decide how to handle those offshore accounts.

Finally, you are not required to seek the administrator’s permission for any investment.  You have total control over the check book of the Panama Foundation… and that’s how the administrator wants it.

Active Business in a Panama Foundation IRA

The Panama Foundation, as defined in Law No 25, Private Interest Foundations, issued on June 25, 1995, may not operate an active business.  So, while it is legal for a U.S. IRA to operate a business, it is not possible to do so if you move the retirement account in to a Panama Foundation.

However, I don’t see this as much of a drawback… an offshore IRA should not be operating a business anyway.  Any business owned and operated by a retirement account will generate Unrelated Business Income in the United States, which will be taxed at 35%.  That’s right, active business income earned in a retirement account is taxable.

To eliminate this tax, an offshore IRA structure may form a UBIT blocker corporation to hold the business.  Then, the corporation passes interest and dividends up to the Foundation/IRA.  This converts the UBI in to traditional investment income and avoids the UBIT.

For more information on UBIT and blocker structures, please see my various posts on this topic.  Suffice it to say, any active business owned by the Panama Foundation IRA should be in a Panama corporation.

I hope you have found this review of the Panama Foundation IRA structure helpful.  For more information, please call us or send an email to info@permieroffshore.com.  We will be happy to work with you and answer any questions you may have.

Note that we are the creators of the Panama Foundation IRA structure.  As such, we are uniquely qualified to help you move your retirement account to Panama.

IRA to Panama
Christian Reeves

Move Your IRA to Panama

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We have been working for months with lawyers, banks, and government agencies in Panama and are finally ready to announce some great news for those seeking asset protection.  You may now move your IRA or other retirement account to Panama and in to the best protection and estate planning tool available… the Panama Private Interest Foundation.

This represents the culmination of a great deal of negotiation and a titanic shift in the offshore IRA industry.  While you were previously required to form an offshore LLC, you may now utilize a U.S. compliant Panama Foundation to hold your retirement account.  This means you have access to all of the investment service providers, banks, and investment opportunities in Panama without being required to add a Panama corporation to your offshore LLC or getting your LLC licensed to do business in Panama… which is a major hassle costing thousands of dollars to complete.

This also means your IRA is in a Category III entity, which is much more advantageous for larger accounts and gives you access to a wider range of jurisdictions.

Let me explain.  Before we created the Panama Foundation IRA, you were required to place your IRA in to an offshore LLC.  This is because you needed to move it in to a disregarded entity for U.S. tax purposes to maintain the tax benefits of being a U.S. compliant retirement account.  If you wanted to invest in a country that doesn’t have an LLC statute, you needed to create a subsidiary corporation under your offshore LLC.  This increased the formation costs and maintenance, as well as the U.S. compliance required to move your IRA offshore.  Most notably, the offshore corporation is required to file a U.S. tax return, IRS Form 5471, which creates too many headaches to list here.

* The only countries offering compatible offshore LLCs are Anguilla, Nevis, Belize, and the Cook Islands.  Obviously, this limits your investment options unless you form an offshore corporation owned by the LLC.

Being what is referred to as a Category III entity, the Panama Foundation may open accounts and make investments in Panama (obviously) and other countries that have agreements with Panama.  This includes Hong Kong and Cayman Islands.  Cayman is universally regarded as the most advanced offshore banking jurisdictions for larger investors, but has no LLC statute.  Structures from Anguilla, Belize, Nevis and Cook Islands are (basically) prohibited from opening accounts in Cayman, but a Panama Foundation has the same legal standing as a domestic entity… which is a major advantage.

* For more on Cayman, please see my article on this topic.

Also, when designing an offshore IRA structure, you want to ensure you are not required to file any U.S. tax forms.  Eliminating filing requirements will save you thousands in compliance costs and greatly reduce the probability of being audited.

Moving your IRA in to the Panama Foundation structure we have created eliminates all U.S. filing obligations.  Both an offshore LLC and our Panama Foundation structure are classified as disregarded entities for U.S. tax purposes and therefore not required to file a return… again, unless you add a corporation to the structure.

* There are times when a corporation and filing Form 5471 can be a major advantage.  See my articles on UBIT blockers for more information.

I also note that the Foreign Bank Account Report (FBAR) is not required for a bank or brokerage account owned by a retirement account.

The above description covers just the basics of moving your retirement account in to a Panama Foundation.  I will be releasing a detailed analysis of the structure and its legal basis in the U.S. in the next few days.

Please understand that the Panama Foundation IRA has a different objective than our typical asset protection structure.  As this Foundation must meet all U.S. requirements for a retirement account, and we wish to prevent the need to file U.S. returns, it uses a different legal system than a Panama Foundation for protecting after tax income.  That is to say, not all my comments and articles on the Panama Foundation apply to a Foundation which holds an IRA.

Basically, what we have done is take those aspects of the Panama Foundation that maximize asset protection and estate planning for U.S. persons, and convert them in to a structure that can support your retirement account.  Once the account is inside the Panama Foundation, you are the manager and have complete control over the investments and the checkbook of the Foundation.

As the manager of the Foundation, and the fiduciary of the retirement account, it’s your job to manage the assets of the Foundation for the benefit of the retirement account, and not for your own gain.  I will address this in more detail in my next post.

Our design also incorporates legal components from the U.S. business trust (which is quite different from a U.S. grantor trust) and the offshore LLC structures we have offered for the last several years.

The Panama Foundation IRA may hold any investment permitted under the U.S. IRA statutes.  This includes physical gold, bank and brokerage accounts, and real estate.  In fact, the Panama Foundation may hold land or other property to be improved by the Foundation, or a rental where the Foundation is to collect rents and pay expenses.

So, moving your IRA in to a Panama Foundation rather than an offshore LLC, will allow you to invest in and open accounts in Panama without a corporation or other expensive maneuvers.  If Panama is where you would like to keep your investments, or you need access to other advanced markets (such as Cayman), you should consider forming a Panama Foundation IRA.

Please send an email to info@premieroffshore.com for additional information.  We will be happy to review this unique structure with you.

Stay tuned for my tax and legal analysis of the Panama Foundation IRA…