Tag Archive for: expat life

nonresident FEIE

How to become a nonresident of the United States

The 330 day test for the Foreign Earned Income Exclusion is being eliminated by President Trump. If you want to keep this tax break, you need to become a legal resident of a foreign country as soon as possible. Here’s what you need to do to become a nonresident of the United States for tax purposes.

Of course, the most important component of the residency test for the FEIE is residency. You must be a legal resident of a foreign country for a full calendar year to qualify for the FEIE using the residency test. Where the 330 day test was over any 12 month period, the residency test is January 1 to December 31.

It doesn’t matter where you get your residency visa for US tax purposes. So long as you have legal residency in a country which is your home base, you’re covered.

Of course, if you want to minimize your worldwide tax obligations, you should become a resident of a country that doesn’t tax foreign source income. For more on this, see: Which Countries Tax Worldwide Income?

For those that want to live in Europe, the most popular residency visa is Portugal. Buy a home for 500,000 euros, or deposit 1 million euros in a local bank, and you can qualify for residency. A resident of Portugal can live anywhere in the EU. You just need to spend a few weeks  a year in Portugal.

The most popular visa in the world is Panama. Invest $20,000 in their friendly nations reforestation program and become a permanent resident. This visa can also lead to citizenship and a second passport in 5 years. For more, see: Best Panama Residency by Investment Program

Once you have your residency visa, you need to cut as many ties with the US and create as many ties with your new home country as possible.  That is to say, a US citizen who wants to become a nonresident for US tax purposes must truly move and become a part of their new community, including:

  • Selling your US home;
  • Leaving US employment and becoming an employee of an offshore corporation reported on IRS Form 5471;
  • Establishing and spending time in a home located in your new country. This home should be of equal size, cost, and amenities as your US home;
  • Establishing business and social ties in the new country;
  • Discontinuing business and social ties in the United States;

Do not:

  • Keep your US home and let the children live there;
  • Have children in school in the United States;
  • Vote in State elections (Federal elections by mail, listing your foreign home as your residence is OK);
  • Have mail sent to your old address in the US. Establish a PMB address if necessary;
  • Continue to use US physicians, dentists, or other professionals who require the taxpayer’s physical presence to transact business.

Remember that you need to be a nonresident for Federal and State tax purposes. Sometimes these tests are different. Here is a list of ties a California court listed as indicating residency (In the Appeal of Stephen D. Bragg, May 28, 2003, 2003-SBE-002).

  • The location of all of the taxpayer’s residential real property, and the approximate sizes and values of each of the residences;
  • The state wherein the taxpayer’s spouse and children reside;
  • The state wherein the taxpayer’s children attend school;
  • The state wherein the taxpayer claims the homeowner’s property tax exemption on a residence;
  • The taxpayer’s telephone records (i.e., the origination point of taxpayer’s telephone calls);
  • The number of days the taxpayer spends in California versus the number of days the taxpayer spends in other states, and the general purpose of such days (i.e., vacation, business, etc.);
  • The location where the taxpayer files tax returns, both federal and state, and the state of residence claimed by the taxpayer on such returns;
  • The location of the taxpayer’s bank and savings accounts;
  • The origination point of the taxpayer’s checking account transactions and credit card transactions;
  • The state wherein the taxpayer maintains memberships in social, religious, and professional organizations;
  • The state wherein the taxpayer registers automobiles;
  • The state wherein the taxpayer maintains a driver’s license;
  • The state wherein the taxpayer maintains voter registration and the taxpayer’s voting participation history;
  • The state wherein the taxpayer obtains professional services, such as doctors, dentists, accountants, and attorneys;
  • The state wherein the taxpayer is employed;
  • The state wherein the taxpayer maintains or owns business interests;
  • The state wherein the taxpayer holds a professional license or licenses;
  • The state wherein the taxpayer owns investment real property; and
  • The indications in affidavits from various individuals discussing the taxpayer’s residency

The above is basically a list of why expats have relied on the 330 day test. It’s easy, you don’t need to invest or spend money to get a visa, and you don’t need to worry about your ties to the US. Just be out of the US for 330 out of 365 days and you’re good to go.

The problem is that expats often pushed their days in the US and the IRS loves to audit these returns. Many don’t realize that travel days and time in international waters can count as US days. Because the FEIE is all or nothing, the risk in these cases is significant.

More importantly, President Trump is moving the US from a global tax system to a territorial tax system. This likely means an end to the 330 day test and a move towards residency.

Because it takes time to become a legal resident of a foreign country, and time to break ties with the US, and you must qualify for a calendar year, I’m recommending clients begin this process as soon as possible.

I hope you’ve found this article on how to become a nonresident of the United States for tax purposes to be helpful. For information on residency visas, or to setup an offshore business, please contact me at info@premieroffshore.com or call us at (619) 483-1708. 

Which Countries Tax Worldwide Income?

Which Countries Tax Worldwide Income?

When you’re planning a move abroad, you need to consider the tax laws of your country of citizenship and your country of residence. The key to a solid expat move is to determine which countries tax worldwide income and avoid them whenever possible.

There are four basic tax groupings of countries. I won’t consider the 22 countries that don’t tax citizens or residents. You can find that list here.

Here’s the 4 tax categories:  

  1. Countries that tax citizens and legal residents on their worldwide income no matter where they live. These countries also tax residents on their worldwide income.
  2. Countries that tax residents on their worldwide income. This is called a residential or physical presence tax system.
  3. Countries that tax citizen residents on their worldwide income but not foreign residents.
  4. Countries that tax residents on their local source income but not foreign source income. This is called a territorial tax system.

The only major nation that taxes its citizens (and green card holders) regardless of where they live is the United States. So long as you hold a U.S. passport or green card, the Internal Revenue Service wants its cut of your profits and capital gains.

  • Some lists of countries that tax citizens and legal residents on their worldwide income include Libya, North Korea, Eritrea and the Philippines. The tax systems of these countries are not well developed and data is limited.

The United States taxes all U.S. persons on their worldwide income. A U.S. person is a citizen, green card holder (who is a legal resident but not necessarily present in the United States), and residents. A resident is anyone who spends more than 183 days a year in the United States.

If you’re living and working outside the United States, and qualify for the Foreign Earned Income Exclusion, you can earn up to $102,100 in salary during 2017 free of Federal income tax. If your salary is more than the FEIE, you will pay US tax on the excess.  

Also, the FEIE only applies to your salary. You will pay US tax on capital gains, dividends, rents, royalties, and passive income no matter where you live.

Category two includes countries that tax residents on their worldwide income. In most cases, a resident is anyone who spends more than 183 days a year in the country. If you’re not living within their borders, you won’t pay tax to these nations, even if you’re a citizen.

I should point out that the “183 days” test is the standard definition of a resident. Some have more complex tests to determine who is and who is not a tax resident. For example, Colombia uses your presence in the country and the following:

1. Staying continuously or non-continuously in Colombian jurisdiction for more than 183 calendar days during a 365 day period (1 year);  
2. 50% or more of your income comes from Colombian sources;
3. 50% or more of your assets are held in Colombian Territory;
4. 50% or more of your assets are managed from Colombian Territory;
5. Having a tax residence in a jurisdiction declared as “tax haven” by the Colombian government.

The best known category two residential taxation countries are Australia, Austria, Brazil, China, Colombia, Japan and Mexico. The residency tax system is the most common and a complete list can be found here.

Category three, countries that tax foreign residents differently than citizen residents, technically includes only Saudi Arabia, Cuba and Philippines. However, some countries impose worldwide taxation on residents only after they have been in the country for several years. So, this category can vary by your situation.

When you’re moving abroad and looking to reduce or eliminate income taxes, you want to move to a category 4 country. These nations are on a territorial tax system and tax only your local source income.

If you live in a category 4 country, operate an online business from a territorial tax country, and don’t sell to locals, you won’t pay income tax to your country of residence. If you move to a territorial tax country and open a restaurant, you will have local source income and thus pay tax on your profits.

The most “business friendly” territorial tax system is in Panama. Other options include Belize, Costa Rica, Hong Kong, Malaysia, and Singapore. For a complete list, click here.

Those are the four tax systems available, with territorial and residency based taxation being the most common. Your objective should be to become a resident of a category 4 country and be a tourist or visitor in countries who would want to tax your business income.

There’s a fifth option you if you plan to spend a lot of time on the road.

You can elect to become a perpetual traveler, as so many internet marketers and entrepreneurs with portable businesses do. If you keep moving, never spending 183 days a year in any one country, you never become a tax resident and are not subject to their income tax reporting or paying requirements.

A perpetual traveler might split her time between Europe, Canada and Asia, or between the United States, Mexico, and South or Central America, never becoming subject to any of these countries tax laws. This option has become popular with nomad internet professionals.

I have two important notes for perpetual travelers:

The first is for Americans. Remember that the U.S. taxes its citizens on their worldwide income, including perpetual travelers. If you go this route, you need to qualify for the FEIE using the 330 day test and not the residency test. Here’s a detailed article on the FEIE for US citizen perpetual travelers. It’s much easier to qualify for the FEIE if you’re a resident of a foreign country for U.S. purposes, even if you spend less than 183 days in that nation.

The second is for everyone else. Several countries will attempt to tax you based on citizenship if you’re a perpetual traveler with no tax home. While their legal standing to require a tax home is unclear, I have seen many nomad clients go to battle with their home country on this issue.

Therefore, I suggest all perpetual travelers become residents of a country with a territorial tax system for the purpose of reporting (or defending your status) to your country of citizenship. Becoming a resident of Panama, while spending only a few days a year there, can simplify your worldwide tax picture.

Panama has one of the lowest cost residency programs. If you’re from a top 50 country, you can become a resident with an investment of only $20,000.

I hope you’ve found this article on which countries tax worldwide income to be helpful. For more on how to setup an offshore company or plan an international trust, please contact me at info@premieroffshore.com or call us at (619) 483-1708. 

IRA when you give up US citizenship

What Happens to Your IRA when you give up US Citizenship / Expatriate?

Thousands of Americans will turn in their blue passports in the next few months. Some because of our crazy political climate, some to stop paying taxes into a broken system, and some because of FATCA and the international banking laws which make it impossible to live or do business abroad. This post will consider what happens to your IRA when you give up your US citizenship or expatriate from the United States.

Whatever your reason for giving up your US citizenship, you need to carefully plan the expatriation process. It’s be fraught with risks, costs, and problems for high net worth individuals.

First, let me define who is a “high net worth expatriate.” The IRS only cares about losing high earners and payors. They could give a damn about the rest of us.

When I consider what happens to your IRA when you give up US citizenship, I am referring only to this group high net worth expatriates.

According to the IRS, a high net worth expatriate is someone whose:

  • Average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than $151,000 for 2012, $155,000 for 2013, $157,000 for 2014, and $160,000 for 2015. As you can see, this amount goes up each year and is tied to inflation’
  • Net worth is $2 million or more on the date of your expatriation or termination of residency, or
  • Fails to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.

If you meet any of these criteria, you’re high net worth person (high value taxpayer) for US expatriation purposes, otherwise referred to as a “covered person.”

So, the question more properly framed is, what happens to your IRA when you give up your US citizenship or expatriate and you are a covered person?

  • High net worth covered persons pay tax as if their IRA was fully distributed to them on the day they expatriate.
  • The early distribution penalty does not apply.

The only published information from the IRS is Notice 2009-85. The discussion of specified tax deferred accounts Section 6 of this notice.

“The mark-to-market regime does not apply to specified tax deferred accounts. Instead, section 877A(e)(1)(A) provides that if a covered expatriate holds any interest in a specified tax deferred account (defined below) on the day before the expatriation date, such covered expatriate is treated as having received a distribution of his or her entire interest in such account on the day before the expatriation date. Within 60 days of receipt of a properly completed Form W-8CE, the custodian of a specified tax deferred account must advise the covered expatriate of the amount of the covered expatriate’s entire interest in his or her account on the day before his or her expatriation date.”

Note that the covered person is treated “as having” received a distribution. This is not the same as having your IRA account cancelled or closed. In fact, you have the option of continuing your IRA after giving up your US citizenship.

If you were to close your account and take a distribution, you’d be liable for the early distribution penalty. If you close your IRA as part of giving up US citizenship before reaching 59 1/2, you will pay a 10 percent early withdrawal penalty in addition to income tax on the amount withdrawn.

If you decide to keep the IRA open after expatriating, you’ll pay US tax when you take distributions from the account, presumably at age 70 ½. This tax will be calculated only on appreciation in the account from the date of expatriation.

That is to say, a covered person will pay US tax on all the gains in her account on the day she gives up her US citizenship. Then she’ll will pay US tax on the gains earned in that account after expatriating when she take the required distributions.

The IRA remains intact. All you did is “prepay” your US taxes on the account.

For example, you have $100,000 in your IRA on January 1, 2017 when you give up your US citizenship. You pay tax on this $100,000 on January 1, 2017 . You decide to keep the account open after expatriation and begin taking distributions 5 years later, in 2022. As of January 2022, your account is valued at $130,000. You will pay tax on the gain of $30,000 as you take these distributions.

Considering you will remain linked to the US tax system after expatiating through your IRA, you would have to be facing a very large early distribution penalty for it to make sense to keep an IRA open.

If you’re a 45 year old doctor who rolled a two million dollar defined benefit or profit sharing plan into an IRA, then you might keep the account going. If you have $150,000 in your IRA, pay the 10% penalty and be done with it.

I hope you have found this article on what happens to your IRA when you give up US citizenship to be helpful. The bottom line is that 95% of us should close our accounts and be done with the IRA. Only those facing large early distribution penalties should consider keeping their account open.

For more information on how to give up your US citizenship, and how to expatriate from the United States, please contact me at info@premieroffshore.com

Keep in mind that the first step in giving up your US citizenship is to get a second passport. Until you have a second passport in-hand, you can’t burn your blue passport. For ideas on where to buy a passport, see my article: 10 Best Second Passports.

Cayman Islands Internet Business

Move Your Internet Business to Cayman Islands Tax Free

Are you looking for a high quality of life, no taxes, and a cool offshore jurisdiction from which to operate your internet business? Ready to move you and your team to paradise for a few years to rake in the cash tax free? Then consider moving your internet business to Cayman Islands.

Cayman Islands had a tax deal you can’t refuse. Move to this business-friendly group of islands with its first-world infrastructure and amazing climate, and pay no taxes. You will also get a 5 year renewable work / residency visa for you, your staff, and their families. There are no restrictions on the number of workers you can bring with you and no requirement to hire locals.

Historically, visas and work permits were extremely difficult to obtain in Cayman. Securing residency previously required you to buy real estate of $500,000 to $1 million dollars and navigate  river of red tape.

Because a residency permit and work visa are essential for the American to qualify for the Foreign Earned Income Exclusion, very few small businesses set up in Cayman.

Suffice it to say, those days are gone and now Cayman Islands is open for business. Today, you can relocate your internet business to Cayman Islands efficiently and without (most) of the impediments.  

Moving a business to Cayman also gets you access to their world-class banks and credit card processing facilities that have been shut to Americans for several years now. Only US persons with a licensed business or a home on Cayman may open a account on the Island.

For example, to further reduce your contacts with the US, you might process credit cards through First Atlantic Commerce, a leading global online payment solutions provider. This enables you to accept payments in up to 145 world currencies in real-time on a 100% PCI-compliant platform. Merchant services include:

  • Multi-currency, multi jurisdictional settlement
  • Real-time processing
  • Virtual Terminal
  • Repeat and Subscription Billing
  • Card Number Tokenization
  • 3-D Secure™ (bank dependent)
  • CVV2/CVC2/CID and AVS checks
  • PCI Compliant gateway

We also highly recommend banking and credit card processing services from Royal Bank of Canada.

Now on to US Taxes.

Here’s how to move your business to Cayman Islands tax free. Do it right and you and your staff can earn up to $101,300 tax free in salary. That’s right, everyone who moves to Cayman with you gets $101,300 tax free. That equates to about a 35% pay increase on your first $100,000 in salary… certainly worth hanging out on a beautiful Caribbean island for a year to earn.

  • You will pay US taxes on salary over $101,300. You might create defined benefit or other retirement structures to further defer tax. A small business might simply hold retained earnings tax deferred.

Even better, you and your team won’t be required to pay self employment tax or any of the US social taxes. No FICA, Medicare, or Obama taxes. That’s a savings of about 15% (7.5% to the employer and 7.5% to the employee).

Of course, you’re in business to make a profit, not just pay your employees. Any income generated by the Cayman Islands corporation can be held offshore tax deferred. If you accrue $5 million in net profits over 3 years on the island, so long as you hold them in your Cayman corporation, you won’t be required to pay US taxes.

The devil is in the details of the US tax code and I’ll get to that.

First, let me point out that I am talking about moving you and your business out of the United States and to the Cayman Islands. This is not some tax dodge using shell companies or hiding from the IRS. This is committing to the business, making the move, and earning the tax benefits.

Shell companies and offshore structures with no substance behind them are so 2000. These days, if you want to cut your US taxes, you must have employees and operations outside of the US. For most businesses, this means moving you and your workers out of the United States for a time.

Then and only then will some of the income generated by this division qualify to be held in the Cayman Islands corporation tax deferred. More on this soon….

In support of this fact, the Cayman Islands Government has granted a number of globally competitive tax holidays / tax free zones throughout the Island. They allow your businesses to establish a physical presence plus offer fast-track business licensing and visa processing. These programs attempt to eliminate the red-tape, excessive costs, and uncertainty that one would normally experience when trying to set up a business in Cayman Islands.

These tax free zones provide the following benefits:

  • No corporate, income, sales or capital gains tax in Cayman Islands – tax payable in the USA is a complex matter summarized below.
  • 100% foreign company ownership permitted
  • A 3-4 week fast-track business licensing regime
  • Renewable 5-year work/residency visas granted in 5 days
  • Cutting-edge IT and business infrastructure
  • Offshore hosting & payment gateway
  • Minimal Government regulation
  • No Government reporting or filing requirements
  • A tech cluster with massive cross-marketing opportunities
  • ’One-stop-shop’ Administration services
  • Work visas for your staff and residency permits for your spouse and children at no additional cost.

Note that you must operate your business in one of the Island’s tax free zones to get these benefits. Also, your business must be in one of the industries to which a tax holiday is available. Qualified businesses include:

  • Internet & Technology
  • Media, Marketing or Film
  • Biotechnology & Life Sciences
  • Commodities & Derivatives
  • Maritime Services

How to Maximize the US Tax Benefits of Moving Your Business to Cayman Islands

Let’s get back to the devil (the IRS) and those details.

The key to the offer in Cayman is the fact that you and your employees will receive work and residency permits on the island. In the past, these have been extremely difficult to get and required that you hire a proportional number of Cayman citizens.

As of 2016, Cayman understands that the days of the shell company are coming to an end. The government is moving to a service based offering that allows you to establish a real business with substance and employees who qualify for the Foreign Earned Income Exclusion. One that will pass muster with the IRS and allow you to minimize your US taxes.

Of course, you need to do your part to make Uncle Sam happy as well. You need to move your business, your workers, and yourself to Cayman Islands. You must reside on the island as a legal resident with a work permit (we have that covered for you), qualify for the Foreign Earned Income Exclusion, and obtain a license from one of their tax free zones.

To qualify for the Foreign Earned Income Exclusion, you need to move to Cayman for the foreseeable future, make the Island your home base, and stay out of the US approximately 8 months of the year.

  • Cayman Islands should be your home base and the jurisdiction from which you operate your business. You don’t need to spend a certain amount of time on Cayman, but you do need to be out of the United States for about 8 months a year.

This allows you to earn up $101,300 in salary from your Cayman corporation tax free in the United States, avoid US social taxes, and retain net profits from your active business in the Cayman corporation tax deferred. The fact that you are structured and licensed in one of the Cayman tax free zones means you operate tax free in Cayman also.

Note that I said net profits / retained earnings in your Cayman Islands corporation will be tax deferred – not tax free – in the United States. When you will decide to take out these retained earnings from your corporation, they will be taxed in the United States. You can decide when that occurs, but you must pay Uncle Sam some day.

The Foreign Earned Income Exclusion is a complex topic, and I have merely skimmed the surface here. For more details, see:

  1. Foreign Earned Income Exclusion 2016
  2. Foreign Earned Income Exclusion Basics
  3. Benefits of an Offshore Company
  4. Eliminate U.S. Tax in 5 Steps with an Offshore Corporation
  5. How to Prorate the FEIE

As you read through these thrilling posts, keep in mind that we are talking about moving you and your business to Cayman. You will qualify for the Foreign Earned Income Exclusion using the residency test and not the physical presence test.

Costs of Setting Up in Cayman Islands

I’ve been working offshore since 2000 and I can tell you that Cayman Islands is without a doubt the most beautiful tax paradise. Add to this  their world class services, IT infrastructure, and top legal and business talent, and it’s an amazing place from which to operate an internet business. Cayman Islands is NOT a low cost option Cayman is the Hyatt or Nieman Marcus of the offshore world, not Wal Mart or Best Western.

Cayman is one of the more expensive jurisdictions from which to run your business. You will need to pay your employees the same as you do in a major US city like Los Angeles or New York to cover the cost of living. Everything you do, from equipment to meals to lodging, will cost about the same as the United States. And everyone will want to travel back and forth to the US to escape that Island Fever.

If you are looking for one of the most beautiful and professional spots on the planet from which to operate your business, Cayman Islands is it.

If you are looking for a place that offers low cost labor and a 4% tax rate, and you have at least 5 employees, consider Puerto Rico.

If you want to maximize the value of the Foreign Earned Income Exclusion in a lower cost city, consider Panama. Yes, Panama regardless of the BS you read about the Panama Papers.

Here is a summary of the costs of setting up your business in Cayman Islands. Note that the minimum number of employees in Cayman is one. The tax benefits described here assume you (the business owner) are the first employee. You might be the only employee or you can bring with you as many support staff as you like. 

The tax free zones have created turn-key offerings that include your residency visa, work permit, and office. The total cost for all of this in a shared / group space is about $1,550 per month. The minimum term of the lease is 3 years and the first year of $18,500 is due at signing

  • You can have up to two people working in the group space. If you have 3 or more employees, you will need a private office. See below.

The cost for a private office for one person with 90 to 100 sq ft., again including all permits, is about $3,000 per month on a three year contract. This includes furniture, phone system, etc. Payments are made quarterly at $9,237.50.

A three person office is $53,450 per year and a 2 person office can be either $41,250 or $49,250 per year depending on if a chooses the standard or large 2 person office. Payments are made quarterly and  the minimum term is 3 years.

In addition, each resident will need to have health insurance, which starts at about $200 per person per month. Family plans are available.

And, speaking of families, there is no additional cost to bring your spouse and dependent children under 18 years of age to Cayman in this program. Their residency permits are basically processed for free and included in your office rent.

However, you might consider setting up an office and work permit for your spouse. That will allow him or her to also earn $101,300 per year tax free under the FEIE working in your family business In this way, you can double the value of the Foreign Earned Income Exclusion.

Also, your kids must be enrolled in private school in Cayman. They are not allowed to roam the streets unchecked. Private school costs about $1,300 per month and a wide range of options and price points are available.

Finally, employees are required to have some type of retirement account on Cayman after 9 months of employment. This may provide additional tax planning options.

As I said above, the cost of living in Cayman Islands will be the same or higher than a major US city. Rent in a residential neighborhood for a two bedroom will run you $2,000 to $3,000 per month. The commute would be about 20 minutes to the office. .

If you want to go big, the rent for a two bedroom on Seven Mile Beach will run you $5,000 to $6,000 per month. If you would like to scope out the area, I suggest you stay at one of the many hotels on Seven Mile.

We can have you setup and operating from Cayman Islands in about 40 days. For more information, and a quote on forming your Cayman corporation and US / Cayman tax planning, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

Cayman Islands vs Puerto Rico

Allow me to close by comparing Cayman Islands to the US territory of Puerto Rico. Puerto Rico offers a tax holiday at 4%, a tax rate which is guaranteed for 20 years. The catch is that your business must move to Puerto Rico and have at least 5 employees on the island.

  • If you have fewer than 5 employees, Puerto Rico is not an option. Focus on Cayman Islands or Panama.

The tax deal in Puerto Rico is very different from that of Cayman Islands. In fact, it’s the reverse of the Foreign Earned Income Exclusion described above.

In Cayman, you earn $101,300 tax free and leave the balance of the profits in the offshore corporation tax deferred.

In Puerto Rico, you draw a reasonable salary and pay tax at ordinary income rates on that money. The remaining net profits of the business are then taxed in the corporation at 4%. If you are living in Puerto Rico, you can pull these profits (less the 4%) as tax free dividends.

So, if your salary is $100,000, and your remaining profit is $2 million, you will pay about $110,000 in Puerto Rico tax (($100,000 x 30%) + ($2 million x 4%) = $110,000). This is all of the tax you will ever pay on this income.

In Cayman, the $100,000 salary is tax free. At some point, you will pay US tax at 35% on the $2 million, or $700,000.  This might be years or decades in the future, but the bill will come due.

For more on this topic, take a read through Puerto Rico’s Tax Deal vs the Foreign Earned Income Exclusion.

I also note that you, as a US citizen or resident, do not need an visas or special permission to move to Puerto Rico. It’s a domestic flight and you can relocate as easily as you would from New York to Miami.

Next, your cost of labor in Puerto Rico will be 30% to 40% lower than in Cayman Islands. The same goes for your cost of living and operating the business.

Finally, Puerto Rico allows you to spend more time in the US. You should be on the island for 183 days a year, not 240 as you should with the Foreign Earned Income Exclusion using the residency test.


Whether you want to operate your business from an island paradise like Cayman Islands or a fiscal paradise like Puerto Rico, all tax deals these days require substance. This means a business with employees abroad adding value and working in the business.

You need to move you and your business outside of the US to maximize the benefits of the Foreign Earned Income Exclusion or of the US territorial tax offerings of Puerto Rico.

I hope you’ve found this article helpful. For more information on moving your business to Cayman Islands or Puerto Rico, please contact me at info@premieroffshore.com or (619) 483-1708 for a confidential consultation.

Foreign Earned Income Exclusion 2016

Foreign Earned Income Exclusion 2016

Good news, the Foreign Earned Income Exclusion for 2016 has increased by $500 to $101,300.

The International Revenue Services has increased Foreign Earned Income Exclusion in 2016 to  $101,300, up from $100,800 for 2015. This means that you can earn a salary from your employer, or from your own corporation, of up to $101,300 free of Federal income Tax if you qualify for the FEIE in 2016.

The FEIE is still the most important tax break for Americans living, working and doing business abroad.

The US taxes its citizens on our worldwide income. If you qualify for the FEIE, you can deduct your first $101,300. If your salary is more than the FEIE, you may still get the joy of paying in to the US system.

The 2016 FEIE gives you exclusion on your personal income tax. If your income is $250,000, you pay personal income tax on $250,000 minus $101,300 or $148,700.

Note that the Foreign Earned Income Exclusion for 2016 covers Federal income tax only. If you are self-employed, or operating a business abroad without an offshore corporation, you will pay 15% in self-employment tax.  Likewise, if you are employed by a US corporation, you will pay US social taxes.

If you are operating a business outside of the US, you should be doing that through an offshore company. This will save you on SE tax and maximize the benefit of the Foreign Earned Income Exclusion.

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

Please send an email to info@premieroffshore.com if you have questions about forming an offshore corporation or maximizing the FEIE as an entrepreneur.

Belize Residency Program

Belize Residency Program Primer

The Belize residency program is the best available if you want to live in Belize or if you’re on a budget. If you want access to a larger city, to operate a business, eventually gain citizenship, or not be required to live in your country of residence, look to Panama.

If you want to retire to happy and beautiful Belize, this residency program is for you. If you have a passport from a restricted country and can’t afford Panama, look to Belize.

The Belize residency program allows you to live and retire in Belize. If you’re a US citizen, it will help you maximize the value of the Foreign Earned Income Exclusion. Here’s everything you need to know about the Belize residency program.


Basics of the Belize Residency Program

Unlike Panama, the Belize residency program is focused on people who wish to “retire” abroad. But they use the term “retirement” quite liberally. In this context, it means that you have a pension or other type of guaranteed income stream of $2,000 or more per month and are at least 45 years of age.

And the cash doesn’t need to come from an IRA or other traditional retirement scheme. It simply needs to be a guaranteed payment (like an annuity) over a number of years. So, if you’re over 45 years of age, you can purchase an annuity of $2,000 per month and you qualify for the Belize residency program.

Also unlike Panama, Belize isn’t picky on who can qualify for residency. Anyone, no matter what passport you hold, who is 45 years of age or more and has a pension of $2,000+ per month can become a resident of Belize.

  • The only other limitations are that you must pass a medical check and a background check (no criminal history). They don’t want a repeat of John McAfee!

In Panama, those with US, UK, and EU passports have an easy go of it. Everyone else must pay to play. For a detailed article, see Panama Residency from Restricted Countries.

Another distinction is that the Panama residency program has a path to citizenship. This Belize residency program does not… there is no Belizean second passport at the end of the road.

Remember that the Belize program is meant  for those who want to live in the country. So, one of the added benefits is that you can many thousands in taxes and import duty. But I am getting ahead of myself….

Let me tell you a bit more about Belize:

Belize is located at the south eastern tip of Mexico, so a short flight from the US. What draws me to the country is that English is the official language and spoken everywhere. No need to learn a language… no communication problems here.

Belize is the ONLY country in Central America where English is the official language. All business is conducted in English and everyone you come in contact with is fluent. In fact, while I often need my broken Spanish in my home town of San Diego, California, I have never needed it in Belize.

The Belize residency program is a great opportunity because of the many advantages the country has to offer.

First and foremost, cost of living is low.

Second, you can structure your life and business to pay zero taxes in Belize.

Third, because it’s tourist mecca there are tons of attractions, great weather much of the year, a slower but efficient pace of life, friendly people, beautiful beaches, to many islands to count (ok, Belize has 86 islands, but that’s alot!) and the list goes on…

Fourth, the US dollar is accepted as currency in Belize.


Here’s a list of reasons to sign up for the Belize residency program.

  • The low cost of living in Belize is one of the biggest reasons why one should think of moving to Belize
  • In Central America Belize is the only English speaking country, as I have already mentioned English is the official language
  • Real estate can be owned by foreigners (no fancy trusts or 99 year leases as in Mexico)
  • Easy access from the US and Canada
  • Being such a friendly country people are drawn by their loving and welcoming nature
  • There are no strict rules to the title to property owned in Belize, it could be taken individually, jointly or in a corporate name
  • One receives fee simple title to your property when purchasing in Belize
  • Financing is also easily available when purchasing property in Belize
  • Incentives is being offered by the government of the Caribbean to encourage more tourism
  • The cruise traffic has risen up to 300% in the last 5 years. This might sound like a negative, but a strong economy rises all boats!
  • Being a British commonwealth country Belize has a long standing tradition and independent judiciary
  • Belize is very diverse with rainforest, rivers, waterfalls, beaches and also tropical forest
  • The exchange rate is stable and fixed. US $1 = BZ $2
  • The waters in Belize is one of the best dive sites in the Hemisphere being the second largest reef in the world
  • The number of retirees gives opportunity to make friends and being social


Belize Residency Program – Qualified Retired Persons Incentive Program (QRP)

Ok, enough pontificating on why I love Belize. Let’s get back to the Belize residency program.

Anyone, and I mean anyone, that is at least forty five of years of age and can put up a CD earning $2,000 per month, can qualify for the Belize residency program. Just pass a background and medical check and you’re golden.

You will also need to open a bank account in Belize with cash to pay your local bills while living in the country. I typically recommend an account with an opening balance of at least $24,000 (24 months of expenses).

Sign up for the Belize residency program and bring your family along for the adventure.

A qualified person can bring along his or her dependents – children who are under 18 years of age or who are person up to the age of twenty three if enrolled in a University. “Dependants” also include your spouse… everyone but the primary applicant is called a dependant.

This program was created for people of means who wish to live in Belize and who can prove a consistent permanent income from abroad with a pension or other form of annuity.

As such, the Belize residency program allows you to bring anything you need to live into the country tax / duty free. This includes cars, boats, planes, and everything necessary to build and outfit a home. If you are planning to live in Belize, the Belize residency program can save you tens of thousands of dollars on import duties alone.


Here’s how it works and how much it costs to get residency in Belize:

The applications are processed by the Belize Tourism Board in collaboration with the Ministry of National Security and the Department of Immigration and Nationality.

We will take you step by step through the Belize residency program. We will complete an application forms, coordinate your visits and medical, make your best claim for residency to the government, etc.  

Items we will need are:

  • Birth and marriage certificates (the latter is only required if you wish to sponsor your spouse),
  • Copy of police record from current place of residence,
  • Notarized copy of every page of passport,
  • Medical certificate proof that shows that you do not carry any transmitted disease such as AIDS,
  • The items necessary to open a local bank account, like bank reference letters, and
  • Four front and four side view passport sized photographs.

Proof of income can be in the form of a bank reference letter or a bank statement mentioning the figures to at least be  US $2,000 per month receivable as pension or retirement income. Or any financial statement from a financial institution in Belize stating that your account will be generating $2,000 per month.

If you’re an entrepreneur, we can help you structure your business so that you are not paying taxes in Belize. This typically means a corporate structure in another tax free jurisdiction like Panama.

Legal fees to prepare, file and negotiate Belize residency with Premier are $5,950 for the primary applicant and $3,350 for each dependant. Government fees are $1,000 for the primary applicant and $750 for each dependant plus $200 per person for the Belize residency card.

If you are interested in be Belize residency program, please contact me at info@premieroffshore.com. I will be happy to work with you to develop your international plan.