offshore company Archives - Premier Offshore Company Services

Tag Archive for: offshore company

Use of an offshore corporation in 2018

06/22/2018/0 Comments/in Articles, Asset Protection, offshore asset protection, Offshore Company/by Christian Reeves

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

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

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

This is all to say that an offshore corporation is:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

US Expats and Retained Earnings in Foreign Corporations for 2018

02/20/2018/0 Comments/in Articles, Foreign Earned Income Exclusion, International Business, Offshore Company, Offshore Company Taxation, Offshore Tax, Taxation/by Christian Reeves

The days of retained earnings in offshore corporations are officially over. No longer can those of us living and working abroad hold profits in excess of the Foreign Earned Income Exclusion inside of our corporations tax-deferred. Here’s what you need to know about US expats and retained earnings in foreign corporations for 2018.

Please note that this article is focused on offshore corporations owned by US persons in 2018. A US person is a US citizen or green card holder no matter where they live or a US resident. For a more detailed and code focused article on this topic, see: Bloomberg on Controlled Foreign Corporations.

Also, there’s some speculation in this post and things are subject to change. The IRS has not issued guidance on how Trump’s tax plan affects US expats and retained earnings in foreign corporations in 2018. Though, every expert I’ve spoken with agrees that the days of retained earnings in excess of the FEIE are over.

A few short months ago, we expat entrepreneurs were all excited about Trump’s tax plan. He was going to eliminate worldwide taxation and move the United States to a territorial tax system. The US is the only major country on earth that taxes its citizens abroad, so this sounded great.

Well, the final bill fell far short of President Trump’s campaign promises. While multinationals were converted to a territorial tax system, and no longer pay US tax on foreign-sourced profits of their international divisions, the small to medium sized expat entrepreneur got the shaft.

If you’re an American expat operating a business abroad, you’ll want to sit down before reading this post. My buddy Gary said it best, “Trump has cut the legs out from under the American expat in favor of the Apples and Googles of the world.”

Let me start by defining a few terms.

For my purposes here, an American expat is a US citizen or green card holder living outside of the United States. They qualify for the Foreign Earned Income Exclusion by being out of the US for 330 out of 365 days or by becoming a legal resident of a foreign country over a calendar year. A resident of a foreign country might spend a couple of months in the US, but never more than 183 days in a year.

Those who qualify for the FEIE in 2018 get to exclude up to $104,100 in ordinary income from their US tax return. That means they get up to $104,100 in salary or business income tax-free because they’re living abroad. All capital gains and salary in excess of the FEIE is taxable in the United States (I’ll leave the Foreign Tax Credit for another day).

US expat business owners have traditionally held profits in excess of the FEIE inside their foreign corporations as retained earnings. This allowed them to defer US tax on these profits until they took them out as dividends. For more on this, see my 2013 article, How to Manage Retained Earnings in an Offshore Corporation.

Then Trump’s tax plan came along and smashed American expat entrepreneurs. As with any tax overhaul, there are winners and losers. We expats apparently didn’t donate as much as the multinationals, so we’re the big losers.

The Tax Cuts and Jobs Act introduced major changes to the international tax provisions of the United States Internal Revenue Code of 1986, as amended, which generally govern the tax consequences to US persons with foreign corporations. Some of these changes may have an impact on the tax structure of US expats.

As a result of the new international tax provisions, the US owners of a foreign corporation, which are controlled by US persons, may be subject to (i) a “toll tax”, (ii) a tax on deemed “global intangible low-taxed income” (GILTI) and a minimum base erosion and anti-abuse tax (BEAT) in the United States, and thus US tax deferral on the income earned abroad in excess of the FEIE may be lost.

To put that into English, The Tax Cuts and Jobs Act hits expats on two fronts:

We must repatriate foreign retained earnings from prior years and pay US tax at 15.5% on those profits. This tax can be spread over 8 years.
The ability of expats to retain profits in a foreign corporation is eliminated. We must now pay US tax on our profits in excess of the Foreign Earned Income Exclusion. A business owner can earn $104,100 tax-free, or a husband and wife both working in the business can take out a combined $208,200 in 2018 free of Federal income tax.

So, an American expat that nets $1 million a year in his or her business will pay US tax on about $897,000, no matter where they live. The ONLY exception and the only place on the planet where Trump’s tax plan can’t reach is the US territory of Puerto Rico. More on that below,

The new tax law eliminated retained earnings in offshore corporations with a very small change to the law. It put just about every income category under the Subpart F of the tax code. Interestingly, oil revenue was the only item removed from Subpart F… I wonder how that happened.

Subpart F income in an offshore corporation is not eligible to be retained tax-deferred. It must be passed through to the shareholders and taxed. Shareholders pay tax on Subpart F income whether or not they actually receive it, much like income in a US LLC.

As a result, if your foreign corporation is a CFC, ordinary business income is now Subpart F income and taxable in the United States as earned.

For an article on the previous definition of Subpart F in a CFC, see: Subpart F Income Defined. If you’re a glutton for punishment, or just nostalgic for the good old days of 2017, see: How to Eliminate Subpart F Foreign Base Company Service Income.

I should also note here that US tax breaks for “pass-through entities,” such as domestic LLCs and S-Corporations are not available to expats. We got all of the bad and none of the good from Trump’s tax plan.

If you’re an American living and working abroad, you have a few options in dealing with Trump’s tax plan and the burden it puts on expats.

The most practical step is to form a US C corporation and start over with a new offshore corporation. Pay the repatriation tax on previous years in your old corporation and start fresh with a structure designed for 2018.

Building out a new structure that includes a US corporation might cut your US corporate tax by 50%. The current US rate is 21% and this can be reduced to 10.5% with a 50% credit in certain situations. In 2026 and beyond, the rate rises to 13.1%. For a detailed article from Harvard, see: Tax Reform Implications for U.S. Businesses and Foreign Investments and scroll down to the section on Low-Taxed Intangibles Income.

This US corporate strategy is much more complex than it sounds. Expat entrepreneurs need to watch out for double taxation. When you take out retained earnings from your US corporation as a divided, you’ll usually pay US tax on the distribution (on your personal return). Careful planning should go into building this structure and a long-term tax plan that minimizes double taxation must be developed.

Another option for businesses with partners abroad is to change their CFC status. The tax laws described here generally apply to Controlled Foreign Corporations. A CFC is a foreign corporation owned by US persons (residents, citizens and green card holders). If US persons own or control more than 50% of the business, it’s a CFC.

If you’re working with non-US persons abroad, you might restructure your business so it’s not a CFC. For example, a US company and a foreign company are working together on deals as separate entities. They might decide to join together in one corporation with each party owning 50% of the shares and having 50% control over the business.

Another option is to buy a second passport from a country like St. Lucia and renounce your US citizenship. Note that it’s not sufficient to buy a second passport to avoid US taxation. You must also renounce your US citizenship and go through the expatriation process. This will take many months and can have a tax cost (exit tax).

In my opinion, every US expat entrepreneur that wants to maintain their citizenship, and is netting $500,000 to $1 million a year in a portable business, should move to the US territory of Puerto Rico. Puerto Rico is the only safe haven on earth not affected by Trump’s tax plan.

If you’re willing to move to Puerto Rico, and spend 183 days a year on the island, you’ll cut your corporate tax rate to 4%. If that’s not enough, you’ll also cut your capital gains rate on assets acquired after you become a resident to 0% (yes, that’s zero, nada, nothing). This zero percent tax rate also applies to dividends from Act 20 companies. ‘

For information on Puerto Rico’s Act 20 and 22, see: Changes to Puerto Rico’s Act 20 and Act 22.

As you read through the many articles on my website about Puerto Rico, note the following changes for 2018:

Act 20 no longer requires you hire 5 employees. You can move to Puerto Rico and be the only employee of your business.
Just like offshore corporations, Puerto Rican corporations can no longer retain earnings. This means that US shareholders of Act 20 companies who are living in the US no longer get tax deferral. To put in another way, after Trump’s tax changes, Puerto Rico’s Act 20 is only available to US citizens and green card holders willing to relocate to the island and spend 183 days a year there.

For an article that compares Puerto Rico’s tax incentives to the FEIE, see: Puerto Rico Tax Deal vs Foreign Earned Income Exclusion.

I suggest that Puerto Rico is best for portable businesses netting $500,000 to $1 million a year. I get to this number because of the fact that you, the business owner, must pay yourself a fair market salary. This salary is taxed at ordinary income rates in Puerto Rico. Then your corporate profits, which are net business income after you pay yourself a “reasonable” salary, are taxed at 4%.

You then distribute these profits to yourself as a tax-free dividend. Even if you move back to the United States, you’ll never pay personal income tax on the dividend. To see this is the US tax code, go to IRC Section 933.

So, Puerto Rico’s tax deal is basically the inverse of the FEIE. With the Exclusion, you get $100,000 tax-free and pay US tax on any excess. With Puerto Rico, you pay tax on your first $100,000 in salary and 4% on any excess.

If you don’t move to Puerto Rico, and remain offshore, your international businesses should be operated through a foreign corporation in a low or zero tax country. Operating your business without a structure or through a US corporation means you’ll also be stuck paying Self Employment tax at 15%. No matter your tax situation, an offshore corporation will almost always reduce your net IRS payment.

All expat business owners should be operating inside an offshore corporation to eliminate Self Employment tax and to maximize the value of the Foreign Earned Income Exclusion. You then report your salary from this company on IRS Form 2555 attached to your personal return, Form 1040.

I hope you’ve found this article on US expats and retained earnings in foreign corporations for 2018 to be helpful. This is sure to be a very hectic and confusing tax year. It’s in your best interest to seek planning advice from an international expert early in the year to minimize the impact of Trump’s tax plan on your bottom line.

For more information on restructuring your business, please contact us at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to work with you to build a new and compliant international structure.

How to trade cryptocurrency and manage investments for others without a license

01/28/2018/0 Comments/in Articles, Banking Offshore, Bitcoin, Cryptocurrency, Offshore Banking, Offshore Company, Offshore IRA/by Christian Reeves

I get a number of emails from readers each week asking how they can manage money for friends and family offshore. They want to trade cryptocurrency and make investments for others without going to the expense of setting up a licensed and regulated exchange. So, here’s how to trade cryptocurrency and manage investments for others without a license.

When you want to trade crypto or other assets for anyone other than yourself, you need an account that allows you to hold other people’s money. Banks are very cautious when it comes to those trading on behalf of others or managing investments without a license.

First, banks don’t want to be fined for facilitating money laundering. Banks paid hundreds of millions in the last few years for “allowing” their customers to avoid taxes and launder illicit gains. The bank might not have had any idea what was going on, but their due diligence procedures weren’t stringent enough to catch the wrongdoers, so they were fined big time.

Second, banks and governments don’t want anyone without a license managing other people’s money. Brokerage and investment management licenses and regulation is big business. If you don’t want to pay, you won’t be allowed to play.

Third, banks must follow strict Know Your Client (KYC) rules. When you open an account, the bank checks you out and thereby knows you, their customer. If you then receive friends and family or customer money in your bank account, the bank doesn’t “know” the true beneficial owner of the money. The actual owner is one level removed from the person the bank “knows.”

Setting up an offshore corporation and hoping for the best is not a good idea in today’s world. Banks are watching for the source of funds on most wires. They will check outflows and for anyone using their account to manage OPM. If you try to hide, you’ll be caught and kicked to the curb.

Against that backdrop, here’s how to trade cryptocurrency and manage investments for others without a license.

When you don’t want to set up a regulated exchange, which can cost $35,000 to $250,000, depending on the country, you can use offshore LLCs and a trading corporation to accomplish your goals.

You, the trader form an investment corporation and a management LLC. Then, each and every client forms an offshore LLC. Yes, every single client, friend, or family, must have their own offshore corporation. Only a husband and wife can have a joint LLC.

Next, all of these structures open offshore accounts at the same international bank. In this way, the bank has done its due diligence on you and your customers. Everyone has been reviewed and approved by the bank and transfers will be permitted between the group of companies.

Once everyone has been approved, the client LLCs can issue a Power of Attorney to your management LLC. With this Power of Attorney on file with the bank, you will be allowed to manage the investments of these clients and transfer funds into your investment corporation.

This multi LLC offshore investment management structure ticks all the right boxes. It allows you to manage client funds and for the bank to do its KYC on everyone involved. Because all the accounts are at the same bank, transfer costs are minimized and the source of funds won’t be questioned.

A separate LLC system to trade cryptocurrency and manage investments for others without a license works well with large investors. Because of the setup costs, it’s not efficient for smaller clients or selling investments to the general public.

This practical limitation is positive for banks. They don’t want someone operating an unregulated offshore hedge fund selling to mom and pop investors. This will only bring trouble and litigation to the bank. They like larger accounts, larger deals, and sophisticated investors.

This system also allows sophisticated investors to put more advanced structures in place. For example, they might want to trade within an international trust for estate and asset protection reasons. High net worth investors might want to hold the LLC inside an offshore life insurance company to eliminate US tax on the capital gains.

You can also use this structures to create private entities in countries with public registries. For example, let’s say you want to invest in Panama. That country has a public registry of corporate shareholders and directors and a list of beneficial owners of foundations (their version of a trust).

To keep your name out of the registry, you can set up an offshore LLC in a country like Nevis or Belize that doesn’t have a public registry. Then, this LLC can be the founder of a foundation or the officer and director of a Panama corporation. In this way, the beneficial owner (you) won’t be listed in the registry.

When someone searches the Panama database, all they’ll see is the name of your Belize LLC. When they go to Belize for more information, they’ll hit a brick wall.

Whether this offshore LLC structure is cost-effective will depend on how many clients/friends and family you plan to manage. In most cases, the base corporation might cost $3,500 and each LLC $2,000 to $2,900 to set up (not including bank fees).

The largest structure I’ve seen like this was 3,400 LLCs and two management corporations in Switzerland. Why, you ask, would someone spend that kind of money on LLCs? Because they don’t want to go through all the compliance and regulation that comes with a fully licensed exchange.

Had they decided to operate as an investment manager in Switzerland, they would have had to hire someone with the necessary Swiss licenses and go through a very arduous registration process. The multi LLC model eliminated both of these requirements.

Plus, once you have a license, you have quarterly filing, KYC and AML compliance, and all manner of regulations to contend with. When you use separate offshore LLCs, it’s a private transaction between you and your friend/client.

Finally, this system allows some clients to move their retirement accounts offshore. They could form an offshore IRA LLC and transfer some or all of their vested retirement savings into that entity. Then, that LLC could issue a POA to you, the trader.

As you can see, this multi offshore LLC approach to trading cryptocurrency and managing OPM for others without a license can be a very powerful tool.

I hope you’ve found this article on how to trade cryptocurrency and investments for others without a license to be helpful. For more information on setting up a regulated or unregulated crypto trading business, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to assist you with an offshore structure and banking.

What is Required to Form an Offshore Company

10/03/2017/0 Comments/in Articles, Offshore Bank Accounts, Offshore Company, Offshore IRA/by Christian Reeves

Quality jurisdictions are asking for more and more information on those setting up offshore companies. If you’re going to structure an international business or an IRA, you’ll need to collect a number of documents before you can form an offshore company.

There are a 4 primary offshore company structures. They are:

Offshore corporation,
Offshore trust or foundation,
Offshore Limited Liability Company (LLC), and
Offshore IRA LLC

Each of these structures has a different purpose and slightly different documents will be required.

An offshore corporation is generally used to hold an active business. This is because a corporation can retain earnings and is this a valuable tax planning tool.

In contacts, a offshore Limited Liability Company is a pass-through entity. An LLC can’t regain earnings and is best suited to passive investments. Some small businesses also select an LLC.

For example, if you’re living abroad, qualify for the Foreign Earned Income Exclusion, and won’t net more than $100,000 in your business an LLC is a good choice. A business that has no need to retain earnings tax deferred might choose an LLC for the lower compliance costs.

An offshore IRA LLC is a unique and complex version of a standard LLC. When structured properly, and IRA LLC allows you to move your retirement account out of the United States and installs you as the manager of that account. Once complete, you have total control of the investments of your retirement account.

When you need asset protection and estate planning for passive and active investments, you need an offshore trust or an offshore foundation. These entities are similar, but the trust has a lot of advanced features compared to a foundation. For a comparison, see: Offshore Trust or Panama Foundation?

Some countries (such as Panama) maintain a public database of the officers and directors of their structures and some do not. You can use an LLC in conjunction with an offshore company to build a bearer share company.

With this in mind, here’s what you will need to provide to your incorporator and resident agent.

Your name and any names you’ve used in the past
Your date of birth
Social Security / National Insurance Number
Current primary residence and whether it’s leased or owned
Landline phone number at your home
Other phone numbers
Country of citizenship
Passport number and country
Profession
Details, if any, of any arrests/indictments or convictions (Exclude minor traffic offenses)
Details, if any, of any proceeding brought involving the SEC, FTC, Federal Reserve Board, a Stock Exchange or their equivalents elsewhere, to which you or any associated business was a party
Details, if any, of any known investigation of yourself by a government agency or regulatory entity
Details, if any, of any search warrant issued with regard to your home, office or other premises occupied
Details of any past or current litigation
Details, if any, of any subpoena to provide records or testify in civil proceedings
Details, if any, if you or your businesses has ever declared bankruptcy, including date of discharge
List any Outstanding Judgments against you or your associated businesses
details, if any, of any liens, attachments, garnishments, receiverships or other orders filed against you or any business with which you are or were associated
List professional or charitable associations of which you have been a director, trustee or member
Details, if any, of any professional organizations from which you have been expelled, suspended or disciplined
List all political parties of which you have been a member
List any government or political office ever held by you or an immediate family member
Details of any expulsions, suspensions or disciplinary actions in respect of a government position held by yourself or an immediate family member

That’s quite a list, and we’re just getting started. You will also need to provide the following documents in original (by courier):

Certified copies of Passport of every Director and Shareholder of the Company
Original Bankers Reference for each Director and Shareholder of the Company
Original Legal or Accountant and professional references for each Director and Shareholder of the Company
US or Non US tax declaration
Notarized copy of a utility bill reflecting the name and home address of each Director and Shareholder of the company
US tax forms as applicable such as W-8 or W-8BEN (actual form varies based on your citizenship)

Only after all of these documents have been received, and your name has been cleared through a database like World Check will a company be formed.

I hope this list of the information required to form an offshore company has been helpful. For more, and assistance with an offshore corporation, LLC, IRA LLC, trust or foundation, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

The US Government is Targeting Bitcoin

09/22/2017/0 Comments/in Articles, Asset Protection, Banking Offshore, Bitcoin, Cryptocurrency, Offshore IRA/by Christian Reeves

The US government has launched an all out war on Bitcoin and battles are raging on several fronts. The purpose of this war is to either kill Bitcoin so that the dollar remains dominant or, failing that, to control Bitcoin such that the government maximized taxable income and eliminates your ability to transact in private.

It’s early days yet in the war on Bitcoin. But, the writing’s on the wall. The only way for you to salvage some level of privacy is to move your Bitcoin offshore. Set up an offshore company and hold your crypto account in the name of the company.

Here are the 4 primary lines of attack the US government has on Bitcoin today. You can rest assured that new agencies will jump into the fray once they find a way to take what’s yours.

IRS taxing bitcoin as a capital asset and not a monetary instrument.
The SEC treating bitcoin as cash so they can regulate ICOs.
Applying civil asset forfeiture rules to Bitcoin.
Requiring you to report your Bitcoin every time you enter or exit the United States.

Let’s start with the IRS. The Service recently declared that Bitcoin and cryptocurrency are assets, not cash and not currency. This means that, when you exchange Bitcoin for FIAT currency, you must pay tax on the gain.

If you held the Bitcoin for less than a year, you pay short term capital gains tax at your standard rate. This is probably around 35%. If you held the Bitcoin for more than a year, you pay the long term capital gains rate on your profit, which is probably 23.5% (20% if Trump repeals Obamacare taxes). These are the Federal rates and your State will also tax the gain.

Had the IRS classified Bitcoin as a currency, they wouldn’t be able to tax you when you convert Bitcoin to dollars. By calling Bitcoin an asset, the IRS can tax the conversion (or more properly, the sale of the asset).

Only currency investments are taxable, such as FX traders, and not basic conversions. That is to say, if you buy foreign currency as an investment, then the gains are taxable.

Then there’s the Securities and Exchange Commission (SEC). If the regulator had determined Bitcoin to be an asset, rather than a cash or cash equivalent, they might not have had jurisdiction to control ICOs. For the reasons why this might have been the case, see: Crowd Sale vs ICO – What’s Legal?

Suffice it to say, if Bitcoin were an asset, all ICOs might have been considered crowd sales and thus outside the purview of the SEC. Of course, this is unacceptable… all investments must be watched over and controlled by our government – so, Bitcoin is cash to the SEC.

To those of us who write on these topics, both of these lines of attack were obvious. Each US agency will define Bitcoin in whatever way allows them to exert control and levy fines to generate more income. That’s the nature of the beast… to a hammer, everything looks like a nail.

Here’s the regulation of Bitcoin that no one saw coming:

Introduced last month, the Combating Money Laundering, Terrorist Financing and Counterfeiting Act of 2017, will force you to report your Bitcoin each time you leave or enter the United States. That’s right, you will be required to fill out a form telling the government how much Bitcoin and cryptocurrency you have each and every time you cross our border.

When I first saw comments on this legislation, I didn’t believe it. I’ve been writing about government overreach since 2000 and still thought this must be an error. It took me days, and a lot of research, to accept that this level of insanity was possible.

When you cross a US border with $10,000 or more in cash or cash equivalents (diamonds, coins, checks, letters of credit, etc), you must report to the government by filling out a form. Of course, filing this form will likely subject you to scrutiny at the airport and unwanted attention from the IRS later.

In most cases, the government has been reasonable in applying this rule. For example, if you’re traveling with collectable coins, you only report if the face value of those coins is over $10,000. So, reporting was generally for those transporting cash and very rarely intruded into the lives of everyday Americans.

The new rules targeting Bitcoin basically allege that cryptocurrency is always with you. Unlike an offshore bank account, where cash is held outside of the US and must be reported once a year, Bitcoin is literally travels with you inside of your laptop. Regulators believe that Bitcoin is stored in your laptop, phone, hard drive, or USB storage device, and is thus crossing the border with you.

This claim that Bitcoin is always with you is key to the government’s attempt to force reporting. If Bitcoin, which is cash or cash equivalent and not an asset in this case, travels with you, the government can force you to report. If it’s cash sitting on the blockchain, and all you have on your laptop are the codes to access that “cash,” no reporting can be required.

That is to say, you don’t need to report how much you have in your bank accounts simply because you’re username and password to access those accounts is stored on the laptop. You can only be required to report what you are physically carrying with you carrying when you cross the border.

And the same law that requires you to report your Bitcoin allows the government to take it from you. Bitcoin will become subject to the asset forfeiture laws. The government can seize your Bitcoin if 1) you fail to report it, or 2) you report it and they believe you obtained it illegally.

Note that I said, they “believe.” The government can take your Bitcoin and then force you to prove how you earned it. The burden of proof falls on you in a civil asset forfeiture case (YouTube video by John Oliver)… and you must be willing to spend big money on lawyers to have any chance of success.

What can you do to protect your Bitcoin?

These are all the ways the US government is targeting Bitcoin. And the only thing you can do to protect your coins is to move them out of the United States and out of the government’s reach. Remember that the US government can seize any cryptocurrency “stored” in a US exchange by issuing a levy or seizure order.

The US government can’t easily seize assets held outside it’s borders. For example, the IRS can levy any bank or brokerage in the US, and any institution that has a branch in the US. So, if you have cash in a bank in Panama, and that bank has a branch in the US, you’re at risk.

The solution is to form an offshore corporation or trust to hold your wallet. Then use only Bitcoin firms located out of the United States… those without ANY ties to the US and can’t be intimidated by Uncle Sam.

The same goes for buying Bitcoin in your retirement account. First, form an offshore IRA LLC. Then move your account into an international bank that doesn’t have a branch in the United States. Then setup an offshore wallet and buy your coins.

I should point out that buying Bitcoin in your IRA is one way to beat the IRS at their own game. Because crypto is an asset, you pay capital gains tax on each and every transaction. However, if you buy Bitcoin in your IRA, you defer or eliminate capital gains tax. Because cryptocurrency is an asset, you can buy and sell it inside an IRA. For more, see How to move your IRA offshore in 2017.

The fact that Bitcoin is an asset also means you can take advantage of the tax benefits available in the US territory of Puerto Rico. Basically, if you move to Puerto Rico, spend 183 days a year on the island, and qualify for Act 22, all crypto gains on coins acquired after you become a resident will be tax free. See: Move to Puerto Rico and Pay Zero Capital Gains Tax.

I hope you’ve found this article on how the government is targeting Bitcoin to be helpful. For more information on taking your IRA offshore, setting up an asset protection structure, or moving to Puerto Rico, please contact us at info@premieroffshore.com or call (619) 483-1708. We’ll be happy to assist you to protect your coins and keep more of those crypto profits.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How to report a foreign salary or international business income

02/16/2017/0 Comments/in Articles, Offshore Company, Offshore Company Taxation, Taxation/by Christian Reeves

Here’s how to report a foreign salary or international business income. If you earn money from working as an employee or independent contractor, you need to report it on your US tax return. Here’s how to report income paid by a foreign company.

I’ll briefly comment on income earned from abroad while living in the United States. Then I’ll focus on how to report a foreign salary or other income while living abroad and qualifying for the Foreign Earned Income Exclusion.

If you’re living in the United States and are paid by a foreign company, you have self employment income. This must be reported on Schedule C and self employment tax will apply.

Being self employed means you can deduct any expenses you had, such as travel, equipment, etc. It also means you’ll pay self employment tax in addition to ordinary income tax on your net profits. SE tax is 15%.

Anyone who does not qualify for the Foreign Earned Income Exclusion should report income from abroad on Schedule C. Even if you did the work outside of the United States, if you were a US resident during the tax year, you have US source self employment income that goes on Schedule C.

For example, you’re a US citizen living in California throughout 2017. You travel to Taiwan for 2 months on a special project earning $30,000. All of the work on this project is performed while you are in Taiwan.

This income is taxable in the United States and self employment tax applies. If you paid any taxes in Taiwan, you can use the Foreign Tax Credit to eliminate double taxation.

Same facts as above, but you’re in Taiwan for all of 2017 and earn $100,000. You’re out of the US for 330 out of 365 days and therefore qualify for the Foreign Earned Income Exclusion using the physical presence test for 2017.

If you’re an employee of a Taiwanese company, your US taxes are relatively simple. You file Form 2555 with your personal return (Form 1040), claiming the FEIE and reporting your salary from a foreign employer. Because you earned less than $102,300, you will pay zero US tax on your income.

If you had earned $200,000, and paid tax in Taiwan, you would use the FEIE on your first $100,000 and the foreign tax credit on the second $100,000.

Salary is taxable at 18% in Taiwan and your US rate is probably about 30%. So, you’ll pay 18% on $200,000 to Taiwan and 12% to the United States (30% – 18%) on the second $100,000 which was over the FEIE amount.

If you’d been working in a country that didn’t tax your salary, you would have paid zero tax on your first $100,000 using the FEIE. For example, you could have lived tax free in Panama while working remotely for a Taiwanese company.

If you’re not an employee of a foreign corporation, then you have income from self employment. SE income will be reported on Schedule C which will link to Form 2555 and apply the FEIE.

For example, you’re an independent contractor working in Panama for a company in Taiwan. You earn $100,000, which is paid into your personal bank account. You will pay zero income tax because you qualify for the FEIE. However, you will pay 15% in self employment tax. SE tax is not reduced by the FEIE.

For more on self employment tax for those living and working abroad, see How self employment tax works when you’re offshore

You can eliminate self employment tax by forming an offshore corporation and having your employer (the Taiwanese corporation in this example) pay into that account. You then draw a salary reported on Form 2555 and not Schedule C.

Your offshore corporation will file Form 5471. In most cases, this will be attached to your 1040 behind Form 2555.

Keep in mind that Form 2555 can be used with any foreign corporation. It doesn’t matter if you’re an employee of an offshore corporation that you own or an employee of someone else. So long as your salary comes from a foreign company, and you qualify for the FEIE, you can avoid self employment tax and Schedule C.

An offshore corporation can also help to defer US tax on income over and above the FEIE. For example, you’re living in Panama, qualify for the FEIE, earn $200,000 from work, and are paid into your Panama corporation.

You can take out $100,000 and report that as your salary on Form 2555. You leave the balance in the corporation as retained earnings. You will only pay US tax on this money when you take it out of the foreign corporation, usually as a dividend.

I hope you’ve found this article on how to report a foreign salary or business income to be helpful. For help preparing your US returns, or to setup an offshore corporation in a tax free country, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

US Filing Requirements for Offshore LLCs

01/12/2017/0 Comments/in Articles, Asset Protection, offshore asset protection, Offshore Company, Offshore Company Taxation/by Christian Reeves

Did you form an offshore LLC last year? Are you using an offshore LLC to hold foreign investments or to protect an international bank account? Here are your US filing requirements for that offshore LLC.

As the owner of an offshore LLC, you’ll need to file an entity election form, an annual tax return, a foreign bank account report, and possibly a statement of foreign assets. Here are the primary US filing requirements for offshore LLCs.

IRS Election to be Classified as a Disregarded Entity

Most offshore LLCs used as investment holding companies should be classified as disregarded entities for US tax purposes. This means that income and profits flow through to your personal tax return (Form 1040) as they are earned.

An offshore LLC owned by one person is a disregarded entity. An offshore LLC owned by a husband and wife, who live in a community property state, is also a disregarded entity. An offshore LLC owned by two people who are not married is a partnership.

Note that only offshore business profits can be held in an offshore corporation as retained earnings. Thus, only business profits can be deferred using a foreign structure.

Because there is no US tax benefit for passive investors in using an offshore corporation, they usually select an LLC with disregarded entity status. This is because the IRS form required from a disregarded entity is much easier (and cheaper) to complete than the one for an offshore corporation.

You must file a form with the US IRS to classify your offshore LLC as a disregarded entity, partnership or corporation. That is to say, you need to select this classification by telling the IRS your preference.

To select your classification, you should complete IRS Form 8832 within 75 days of forming your offshore LLC. I suggest you send in this form as soon as you receive your company documents from the registrar.

As you go through this form, you’ll see that there is a default classification for various entities. If you’re at all unsure, send in the form. It’s better to get the guaranteed result by filling in one extra form than wonder or make a mistake.

Also note that there are some structures that can’t elect to be treated as a partnership or as a disregarded entity. See page 7 of the instructions to Form 8832 for a list of those entities. In most cases, a corporation can’t elect to be treated as a disregarded entity.

Annual Tax Return for an Offshore LLC

Once your international LLC is categorized as a disregarded entity, you must file IRS Form 8858 each year. This form reports income, expenses and transactions involving the LLC, all of which should flow-through to your personal return.

Form 8858 is a simplified tax return that just asks for the basics on your foreign transactions. It’s attached to your personal return (Form 1040), so no need to send in a separate packet. This also means it’s due whenever your personal return is due (April 15 or October 15).

If you didn’t make the election to be considered a disregarded entity, then you might need to file a Foreign Partnership Return (IRS Form 8865) for a Foreign Corporate Tax Return (IRS Form 5471). Both of these take a lot more work to complete than Form 8858.

It’s very important that you file Form 8858 every year. The penalties for missing it are outrageous.

The penalty for failing to file IRS Form 8858 is $10,000 per year. If the IRS sends you a notice reminding you to file, the penalty becomes $10,000 + another $10,000 for every 90 days you refuse to file after being notified. The cumulative penalty can be $50,000 per year per entity. See page 2 of the instructions to Form 8858 for more details.

Foreign Bank Account Report for an Offshore LLC

If your offshore LLC opens a bank account, and you’re the signer or beneficial owner of that account, you must file a Foreign Bank Account Report (or FBAR) on FINCEN Form 114.

An FBAR is required for your offshore LLC if you held more than $10,000 in cash or securities in an offshore account. Even if you had that balance for only one day, you must file a foreign bank account report.

Also, this is the cumulative total of all your accounts… all the accounts you are either the signer or beneficial owner of. If you have $5,000 in a personal account and $6,000 in your offshore LLC, then you have $11,000 offshore and need to report.

Like Form 8858, the penalties for making a mistake on the FBAR are quite high. If you think you might need to file, then file. Submitting an extra form to cover your backside is always better than taking a risk of $10,000 to $50,000 a year.

Statement of Foreign Assets

If you have significant assets offshore, you likely need to complete Form 8938, Statement of Foreign Assets for your offshore LLC. Here are the filing requirements for Form 8938.

If you’re married filing joint, living in the United States, and have more than $100,000 in foreign assets at the end of the year, or more than $150,000 on any day of the year, you must file Form 8938.
If you’re married filing separately, living in the United States, and have more than $50,000 in foreign assets at the end of the year, or more than $75,000 on any day of the year, you must file Form 8938.
If you’re single, living in the United States, and have more than $50,000 in foreign assets at the end of the year, or more than $75,000 on any day of the year, you must file Form 8938.
If you’re married filing joint, not living in the United States, and have more than $400,000 in foreign assets at the end of the year, or more than $600,000 on any day of the year, you must file Form 8938.
If you’re married filing separately, not living in the United States, and have more than $200,000 in foreign assets at the end of the year, or more than $300,000 on any day of the year, you must file Form 8938.
If you’re single, not living in the United States, and have more than $200,000 in foreign assets at the end of the year, or more than $300,000 on any day of the year, you must file Form 8938.

These are the most basic filing requirements. You should review the instructions carefully to figure what constitutes a “reportable” asset and whether you need to file this form.

If you’re unsure, or right on the line, I suggest you send in the form because the penalties for failing to file can reach $50,000 per year (do you see a theme developing?). Better to be safe than sorry when it comes to offshore reporting.

I should also point out that there are a few investments that don’t need to be reported on the FBAR or the Statement of Foreign Assets. Primarily, gold and real estate held in your name outside of the US do not need to be reported.

However, if you hold those assets inside of an offshore LLC, the LLC must be reported. The only time gold and real estate are exempted are when they’re held in your name without a an offshore structure such as an LLC, corporation, trust or foundation.

And, when I say they don’t need to be reported, I mean that your ownership of them does not need to be reported. When you sell, the gain is taxable and is to be reported on your personal tax return. Also, if the foreign real estate is a rental, you must report income and expenses to the United States just as you do domestic property.

I hope you’ve found this article on the offshore filing requirements for offshore LLCs to be helpful. For more information, or to be connected to an international tax expert who can prepare your returns, please contact us at info@premieroffshore.com or call us at (619) 483-1708.

Trump is Good for Most Offshore Businesses

01/03/2017/0 Comments/in Articles, Banking Offshore, International Business, Offshore Bank Accounts, Offshore Company, Offshore Company Taxation/by Christian Reeves

With all the talk about keeping jobs at home and taxing foreign corporations, I wanted to start the year with a post on why Trump is great for the offshore industry… at least, for those operating small businesses, investing abroad, and/or moving assets offshore for asset protection.

This article will focus on why a Trump presidency is good for small businesses operated outside of the United States. Businesses where the owner is living and working abroad or a semi-autonomous division of an online or service business is based in a zero tax foreign country.

If you’re an American expat, don’t worry, President Trump is focused on the big guys…

Unless you’re a multinational with intellectual property offshore, or a manufacturing firm with a plant in Mexico, President Trump will be a friend (or a non-issue).

Tax laws that are likely to change involve intellectual property and imports from certain countries. These don’t impact small business, they’re used by multinationals to stash cash offshore.

Trump says he’ll bring back jobs and cash to the United States. He’ll do that by offering a tax holiday for previous retained earnings. Then he’ll make it more difficult for large companies to stash cash offshore and benefit from cheap foreign labor.

To reduce the benefits of going offshore, Trump says he’ll cut the U.S. corporate tax rate, modify the intellectual property laws, and impose import duties on goods from China and Mexico if they don’t agree to renegotiate existing trade deals.

None of these changes affect U.S. expat entrepreneurs and small business owners. If you’re running an online business from a low tax country, you have nothing to worry about.

First, a lower U.S. corporate tax rate doesn’t make any difference to you or change your reasons for going offshore. You wouldn’t be paying corporate tax in the United States anyway… you’d set up as an S-Corporation or Limited Liability Company and pay only personal income tax.

In fact, more than 90% of US businesses don’t pay corporate income tax. Profits flow through to the owners, who pay personal income tax, but not corporate rates. For more on this, see Forbes.

So, a lower U.S. corporate tax rate doesn’t make any difference to a small business. Moving a small business offshore is about reducing your personal income tax rate, not your corporate tax rate. Trump is all about the corporate rate.

The key to reducing your personal income tax rate by moving offshore is to qualify for the Foreign Earned Income Exclusion. If you’re a resident of a foreign country, or you’re out of the United States for 330 out of 365 days, you can earn $102,100 in salary from your offshore corporation and pay zero taxes. If a husband and wife both work in the business and qualify for the Exclusion, you could earn over $200,000 tax free.

If you net more than the Exclusion, you can hold these profits in your offshore corporation as foreign retained earnings tax deferred. When you take them out, you’ll pay personal income taxes on the dividend.

The bottom line is, if you’re offering a service or operating online, there’s nothing to worry about. The same goes for internet marketers, bloggers, and anyone with a portable business. You have no treaty or import / export concerns, so Trump will make no difference to you.

As an expat, you should focus on the tax laws of your country of residency. Stick with nations that won’t tax your foreign sourced income, and qualify for the Exclusion, and you’ll pay zero tax on your profits.

For a list of countries that don’t tax foreign sourced income, see territorial tax jurisdictions. These countries tax local income but not profits from sales to people and companies outside of their borders.

For example, Panama has a territorial tax system. If you’re living and working in Panama, operating an online business, and selling products to clients in the U.S., all of your income is foreign sourced to Panama and not taxable there.

What if you’re business is netting well over $100,000 (single) or $200,000 (joint)? Then you might consider going “offshore” to the U.S. territory of Puerto Rico. The tax deal offered by Puerto Rico is the opposite of the Foreign Earned Income Exclusion.

Under Puerto Rico’s Act 20 and 22, you’ll pay tax on your salary at ordinary rates and zero tax on dividends from your corporation. So, if you net $500,000, and draw a salary of $100,000, you pay tax on the first $100,000 and nothing on the remaining $400,000. Net $2 million, pay tax on the first $100,000, and zero on $1.9 million.

Note that I said the amount after your salary is tax free, not tax deferred. For mid-sized corporations or very profitable online businesses, Puerto Rico is a unique opportunity. You can realize a significant savings over the FEIE.

I hope you’ve found this article on why Trump is great for offshore corporations to be helpful. For more information on how to structure your international business, or set up in Puerto Rico under Act 20, please contact me at info@premieroffshore.com or call us at (619) 483-1708 for consultation.

How to Stop Paying Payroll Tax

11/20/2016/0 Comments/in Articles, International Business, Offshore Company Taxation, Taxation/by Christian Reeves

During the election,Trump claimed he’s paid “hundreds of millions of dollars” in taxes over the years. Yet, he probably didn’t pay any personal income taxes since 1995 because of a $916 million loss carryforward. How can both of these statements be true? Because most Americans pay more in payroll taxes than income tax!

In this article, I will explore how you can opt out of the US payroll tax and self employment tax systems by going offshore. How to stop paying into Social Security and other government programs that might not be there when you need them. How to create your own security blanket offshore that’s under your control.

Federal payroll tax is about 15%, with half being paid by your employer and half being deducted from your check. In addition, most states charge a payroll tax of 1.5% to 7.5%, again with half coming from the employee and half from the employer.

Self employment tax is basically payroll tax for small business. If you operate without a corporation, and report your income and expenses on Schedule C of your personal return, you will pay 15% of self employment tax. This is intended to match up with the 7.5% paid by an employer and the 7.5% withheld from every paycheck.

I’m using round numbers to keep it simple. For the precise cost of hiring an employee in California, see this great infographic.
For purposes of this article, I’ll use the terms self employment tax and payroll tax interchangeably.

When the Donald says he’s paid hundreds of millions in taxes, he’s probably counting employment taxes paid by his many companies, plus payroll and other taxes he’s paid personally. Assuming a payroll tax cost of 10% for each employee, the numbers add up quickly and his boast is probably correct… even if he paid zero in personal income taxes.

About 66% percent of households will pay more in payroll taxes than they will in income tax. Only one in five households will pay more in income taxes than employment taxes. Those who do pay more income taxes than payroll taxes are at the very top of the wage scale. Middle income and low income taxpayers are paying far more in payroll than income tax.

Only 18% of US households pay neither payroll nor income tax. Of these, half are retirees living on their Social Security and have no other taxable income. The rest have no jobs and not much income. (source: T16-0129 – Distribution of Federal Payroll and Income Taxes by Expanded Cash Income Percentile, 2016, Tax Policy Center)

If you’re a business owner or an independent contractor, here’s how to stop paying payroll taxes… and income tax on your first $102,100 of salary in 2017.

Live outside of the United States, qualify for the Foreign Earned Income Exclusion, operate your business through an offshore corporation in a zero tax jurisdiction, and you will pay no payroll taxes of any kind.

In order to qualify for the Foreign Earned Income Exclusion, you must be out of the United States for 330 out of 365 days or be a legal resident of a foreign country and out of the US for 7 or 8 months a year. Any income earned while in the US will be taxable here.

As a legal resident, your new country should be your home base for the foreseeable future. If you move somewhere for a short term job, you’re not a resident for purposes of the FEIE. You need to move to a foreign country with the intent to live there indefinitely.

If you don’t want to go through the hassle of getting a residency visa, you need to be out of the US for 330 out of 365 days. While this version of the test doesn’t give you much time with friends and family in America, it’s far easier to prove should the IRS challenge your tax return.

If you live abroad and qualify for the FEIE, but don’t operate your business through an offshore corporation, you will still pay payroll taxes! You will eliminate income tax on your first $102,100 in 2017, but self employment tax will apply at 15%. So, a business that net’s $100,000 is basically paying a penalty of $15,000 for failing to incorporate offshore. A husband and wife who net $200,000, could pay a $30,000 penalty.

If you run your foreign business through a US corporation, you will pay payroll taxes. If you don’t have any corporate structure, you will pay self employment tax.

What happens if you make more than $100,000 (single) or $200,000 (both spouses work in the business)? Any excess salary you take out of the business will be taxed at about 32% by the IRS. Still, no payroll or self employment taxes will apply.

If you’re operating through an offshore corporation, you may be eligible to hold those profits in the company and not pay tax on them until they are distributed. That is to say, you can hold income over the FEIE amount as retained earnings in your offshore corporation.

These retained earnings will basically create a giant retirement account or security blanket. Like money contributed to an IRA, this cash is untaxed until you take it out of the corporation. Unlike an IRA, there are no rules or age requirements forcing distributions.

So, if you want to stop paying payroll taxes and self employment taxes, move out of the United States, qualify for the FEIE, and operate your business through an offshore corporation.

For help on setting up a tax compliant structure, please contact me at info@premieroffshore.com or call us at (619) 483-1708. I will be happy to assist you to set up offshore.

Offshore Asset Protection for Affiliate Marketers

11/02/2016/0 Comments/in Articles, Asset Protection, Asset Protection Trust, International Business, offshore asset protection/by Christian Reeves

Affiliate marketers face unique asset protection, privacy, and tax planning challenges. This article will review your options and point out some of the pitfalls to watch out for. We’re specialists in offshore asset protection for affiliate marketers and can help you to grow your online business in an efficient and compliant manner.

At the end of the day, www.premieroffshore.com, and our lifestyle site www.escapeartist.com, are internet based businesses. I write SEO optimized posts like this one to drive traffic and bring in leads. We’re a remote business with our publishing group based in San Diego and fulfillment in Belize and Panama City.

As the editor and chief marketing guy, I spend my days on the road, tapping away on my laptop. Our in-house attorneys are chained to their desks, but I made sure the marketing team was portable.

We’ve been providing offshore asset protection to affiliate marketers via the web since 2003 and understand the unique needs of your business model. We’re the only firm that provides offshore structures and U.S. tax compliance… at least, the only one in the middle of the market. Our price points are a bit lower than Deloitte, PwC, and E & Y.

Our offshore protection structures are positioned in the middle of the market. Less than big name CPA firms and higher than offshore incorporation mills that provide no guidance or support.

This post will focus on asset protection for affiliate marketers. As I said above, we also provide tax planning for offshore businesses, as well as for those in the U.S. territory of Puerto Rico. For more on Puerto Rico, see: Puerto Rico is the Top Offshore Jurisdiction for Americans.

To summarize Puerto Rico, if you move your business to the island, and hire 5 employees, you’ll cut your U.S. tax rate to 4%. To compare that tax deal to moving offshore, see: Puerto Rico Tax Deal vs Foreign Earned Income Exclusion.

The remainder of this article will focus on offshore asset protection. Offshore asset protection for affiliate marketers is generally tax neutral – it should not increase nor decrease your U.S. taxes. It’s meant to keep your transactions private and your cash safe from future civil creditors.

You can combine offshore asset protection with an office or division offshore that helps to manage your worldwide tax obligations. But, your asset protection plan is independent of your international tax plan. Thus, you might start with an offshore asset protection plan for your affiliate marketing business and grow it into a business tax savings plan.

Issues in Asset Protection for Affiliate Marketers

When planning an offshore asset protection structure, affiliate marketers face a number of interesting challenges. For example, the need for privacy and the ability to diversify with subsidiaries are more urgent than with other business models.

Affiliate marketers value their privacy. For this reason, we created the Panama max privacy structure. We use a Belize LLC as the founder of a Panama foundation and a Panama corporation under the foundation to run the business. We can add corporations from other jurisdictions, as active business subsidiaries of the foundation, where necessary.

For more on our max privacy structure, see: The Bearer Share Company Hack

The Panama foundation provides estate planning and asset protection for your business units… and acts as a holding company to bring them together under one umbrella.

Panama offers great asset protection and banking facilities. The problem is that they have a public registry of ownership. That means the founder of a foundation, along with the shareholders and directors of corporations, are public record. We work around this with a Belize LLC because Belize doesn’t maintain a registry and Panama allows the founder to be a person or a foreign company.

That’s all a fancy way of saying that the Belize LLC maximizes privacy by acting as the founder of your Panama Foundation. When someone searches the Panama registry, all they find is the name of your Belize company.

I believe you’ll find that the Panama foundation is the best choice when planning an asset protection structure for your affiliate marketing business. It’s primary competitor, the offshore trust, is a great tool, but not recommended for managing an active business.

An offshore asset protection trust is the solution for someone who wants to build a nest egg offshore out of the reach of future civil creditors. You can add money managers as trustees and maximize protection with a “protector” in case you (the settlor) come under duress.

That is to say, an international trust is perfect for someone who wants to put cash away for the future. A trust is not the structure to hold an active business where you want to maintain control and maximize privacy.

Many of our clients move a portion of their after tax net profits out of the Panama structure and into an offshore trust. You can combine both for the best of both worlds while diversifying your holdings.

Offshore Merchant Accounts

Specializing in offshore asset protection for affiliate marketers means working with many banks and acquirers around the world. We’re experienced in merchant account issues as described here: How to Get an Offshore Merchant Account.

For example, many of our clients run multiple MIDs and require subsidiaries from a variety of jurisdictions to hold those accounts. This allows them to maximize privacy, diversify risk, and build systems that spread chargebacks among their portfolio.

To support this requirement from affiliate marketers, we’ve built a network of agents around the world. We can incorporate subsidiaries in a different countries quickly and at a reasonable cost.

We also understand that subsidiaries must be formed in countries which are acceptable to your processor. For this reason, we have U.K., Hong Kong, E.U., Caribbean, and Panama solutions. We also advise on U.S. accounts for companies in Puerto Rico.

A comapny incorporated in the U.S. territory of Puerto Rico can open bank accounts at just about any U.S. bank.

Another option for a business with no office or employees in the United States, is to form a subsidiary in the U.S. That subsidiary will hold only bank and merchant accounts and pass profits to the parent company.

This solution is recommended for entities with no U.S. source income. You will likely need a U.S. person to open the account… it’s become difficult for foreign persons to open U.S. accounts… and nearly impossible for non-U.S. persons without U.S. credit scores to get a low cost merchant account.

Why Hire a U.S. Provider?

Internet marketers know how to outsource. How to leverage low cost labor around the world to get things done. Why should you pay U.S. prices for your international tax or offshore asset protection plan?

Simple: only a U.S. expert can build an offshore asset protection structure that’s U.S. compliant.

When you outsource your offshore structure, you will get answers to your questions and solutions based solely on the laws of that country. For example, contact an offshore trust promoter in Cook Islands and they’ll answer inquires based on Cook Island law.

But, when you’re a U.S. citizen, your compliance risk and liability from lawsuits is in the United States. Thus, the focus should be on how the laws of your asset protection jurisdiction interact with those of your home country.

Since this is a post on asset protection for affiliate marketers, here’s a tech example…

You, the IT professional, can outsource website design because you’re an expert in website design. You know exactly what you want to accomplish and how to get there. You write the text and manage the process from start to finish.

What if you weren’t an expert in design or SEO issues? Should you hire someone to quarterback the project or should you outsource? Knowing what you know now, would you have gone it alone or hired someone to guide you in those early days?

You’d hire a quarterback because you don’t know what you don’t know. As an an expert, you understand how complex a major design or redesign can be. You know that a layperson will likely screw it up terribly, putting the entire project at risk.

This knowledge has come over years in the industry. Through trial and error, you know where the pitfalls are. You know how to drive traffic and optimize your sites. You know what works and what doesn’t.

I have a friend who’s new to the online world. He was tasked to redesign a 10 year old website with 15,000 pages and a solid Google reputation. The owners of the site didn’t want to spend any money, so he was on his own and outsourced design.

While updating the site, he thought it would be a good idea to restructure the URLs. To create a few different categories and make the permalinks more descriptive. Yeh, he decided to change the URL structure and break the thousands of inbound links for an authoritative site… the links that gave the domain much of its “reputation.”

As an internet professional, you know what a bad idea it is to change the URL structure of an authoritative website with years of history. But my friend had no idea what he didn’t know. Had he hired a quarterback, the expert would have stopped him from falling in this obvious trap.

It’s the same when planning an offshore asset protection structure. You need someone to manage the process and keep you in compliance. Outsource and the promoter will tell you what you want to hear (sure, we can restructure your URLs). Hire an expert and they will tell you “no,” when you need to hear it!

For example, when you want to use a nominee singor on your offshore bank account, you need to hear no. When you, a U.S. resident with no employees offshore, want to setup a company to hold foreign profits and only pay U.S. tax when you bring the money into the U.S., you need to hear hell no!

As with internet marketing, there are many risks in going it alone. Unlike online risks, the penalties for getting out of compliance or using an offshore structure incorrectly can cost you hundreds of thousands of dollars in penalties or even land you in jail. The U.S. government has become extremely hostile to non-compliant offshore structures and you must have an expert in your corner to keep you from becoming a target.

The world of offshore is ever changing, complex, and fraught with risks you can’t see. We can guide you the maze and quarterback your offshore structure, all with a focus on your internet based business.

I hope you’ve found this article on asset protection for affiliate marketers to be helpful. For more information, please contact me at info@premieroffshore.com or call (619) 483-1708 for a confidential consultation.

Watch Where You Invest Those Retained Earnings – IRS Tracking Luxury Home Purchases from Offshore Companies

10/12/2016/0 Comments/in Articles, International Business, Offshore Company, Offshore Company Taxation, Tax Debt, Taxation/by Christian Reeves

According to the N.Y. Times, The IRS has begun tracking homes bought through offshore companies and shell corporations in the United States. If you’ve setup an offshore structure, and used your retained earnings to buy real estate in the United States, you’re probably a target of the IRS.

Even if your offshore company is tax compliant, you still may be in trouble with the tax man for using those retained earnings for your personal benefit. You may be living in the property at below market rent or taking the rents as personal income.

If you’ve managed to avoid the worst of the pitfalls, investing retained earnings in the United States might have converted them to taxable distributions to the parent company. For more information, see: How to Manage Retained Earnings in an Offshore Corporation

The bottom line is that offshore retained earnings are best held offshore. Unless you have a tax plan and written opinion from a reputable firm, leave the money alone and allow it to build up inside your operating company.

And now, here’s the rest of the story:

As I said above, the IRS is targeting luxury home sales involving offshore companies. Because buying US real estate is a common, if risky, use of retained earnings, this investigation is likely to net many offshore entrepreneurs.

The first stage of this investigation is now complete. It was focused on Miami and Manhattan, where over 25% of the all-cash luxury home purchases made using offshore companies or shell corporations were flagged as suspicious.

Today, officials said they would expand the program to areas across the country. The IRS will target luxury real estate purchases made with cash in all five boroughs of New York City, counties north of Miami, Los Angeles County, San Diego County, the three counties around San Francisco, and the county that includes San Antonio.

The IRS says that the examination, known as a geographic targeting order, is part of a broad effort by the federal government to crack down on “money laundering and secretive offshore companies.” As we know, “money laundering” is basically code for “tax cheats.” For every one drug kingpin caught in their net, they’ll land 1,000 tax cases.

Cases will be selected based on the purchase price of the property. Only all cash sales will be targeted in this round of audits. The dollar values involved are as follows:

$500,000 in and around San Antonio;
$1 million in Florida;
$2 million in California;
$3 million in Manhattan; and
$1.5 million in the other boroughs of New York City.

You might be thinking, that the IRS doesn’t have data on every real estate purchase in the United States. How the heck are they going to audit every single transaction over these amounts.

Never fear, the IRS thought of that. All they needed to do is issue an order to every title insurance company in the United States. Basically, they’ve drafted title insurance agents into the IRS army (unpaid, of course), to search through their records and select those who should be investigated.

Title insurance companies are involved in just about every residential and commercial real estate transaction in the United States.

And these insurance agents aren’t just providing information on the home in question. They’re identifying the escrow agent, the US and offshore banks involved, all paperwork from the offshore company, etc.

Once the IRS has the bank account information, they’ll summon your account records. This will enable them to chase down all inbound and outbound wires.

Here’s the bottom line: investing retained earnings into the United States opens up a pandora’s box of trouble. I’ve been telling clients this for years and now it’s come to fruition.

If you have an active business offshore, keep your retained earnings offshore. Don’t make you and your cash a target for the IRS. Even if you’re 120% tax compliant, avoid the audit, avoid the battle, and protect your hard work from the Service.

I hope you’ve found this article on the IRS’s targeting of offshore retained earnings to be helpful. If you have questions on structuring a business offshore, you can reach me at info@premieroffshore.com for a confidential consultation.

Move Your Internet Business to Cayman Islands Tax Free

05/13/2016/0 Comments/in Articles, International Business, Offshore Company, Offshore Company Taxation, Travel, Lifestyle and Culture/by Christian Reeves

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:

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.

Conclusion

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.

Mossack Fonseca Searchable Database Goes Online – Who Should be Afraid of the IRS and Panama Papers?

05/09/2016/0 Comments/in Articles, Offshore Company, Offshore Company Taxation, Panama, Taxation/by Christian Reeves

Do you have a company or bank account in Panama? Are you wondering if you should be worried about the IRS and Panama Papers? Do you know that the searchable database of Mossack Fonseca clients came online today? Is the thought of the IRS knocking on your door keeping you up at night?

Let me explain who should be afraid of the IRS and Panama Papers and who has nothing to worry about. Hopefully this will help most of you to rest easy, and those who have issues will take action before it’s too late.

First, a bit of background. A few months back, a hacker stole the records of one of the largest incorporators and law firms in Panama, Mossack Fonseca. The German newspaper Sueddeutsche Zeitung obtained the 11.5 million files and shared them with the Washington D.C.-based group of investigative journalists. This trove of documents became known in the press as the Panama Papers.

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

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

Also exposed have been scammers and fraudsters hiding behind shell companies. For example, companies setup by Mossack Fonseca were used to dupe over 1,000 UK residents in a ponzi scheme.

I applaud the person who obtained these documents for shedding light on the dark side of the industry. Cleaning out those who use offshore structures to hide crime – or even hypocrisy – is a worthy goal that helps those of us trying to do things the right way. Those who use offshore companies within the law to minimize taxation and maximize privacy.

But, what about privacy for those who are following the law? What should reporters do with this data? Should they have the right to report on the private dealings of thousands of innocent people with legitimate uses for these companies?

Isn’t this akin to receiving stolen business records and financial data from Apple and putting in on the front page? No newspaper on the planet would do that… it would be immoral.

Does anyone have a right to know that Simon Cowell formed two offshore companies in the British Virgin Islands to buy property in the Caribbean?

What about the fact that Jackie Chan has an offshore company to manage his international projects?

What about Mossack Fonseca drafting the contracts for the sale of David Geffen’s 377-foot-long yacht? The boat was flagged in Panama, which is very common. Do we need to know this?

It appears that these were perfectly legal and compliant entities. Are they newsworthy?

Is there no right to privacy in our business and financial dealings? Do those who write on these topics owe a duty of care when using stolen data?

Job well done by the hacker… now how about some level of responsibility from the reporters?

OK, I’m off my soapbox. Back to who should be afraid of the IRS and Panama Papers.

If you or your representative used Mossack Fonseca to form your offshore structure, you need to be prepared for that information to become public. A searchable database of 200,000 offshore accounts, and thousands of companies went online today.

This online database will list:

The name of anyone listed as a director or shareholder of an offshore company formed by Mossack Fonseca.
The names and addresses of more than 200,000 offshore companies.
The identities of dozens of intermediary agencies that helped set up and run those structures with Mossack Fonseca.

NOTE: If you have a company in Panama, you should ask your incorporator who they used as the resident agent for service of process. If your lawyer or tax planning firm incorporated through Mossack Fonseca, your data is probably in the public domain. Premier Offshore has never worked with Mossack Fonseca.

Most clients list themselves as the director and shareholder of the offshore company. Those who decided to be as transparent as possible in their dealings with Mossack Fonseca will be listed in the database.

In fact, I would never setup a company with a nominee shareholder or officer. To do so would put your corporate assets at risk. Nominee directors in Panama are fine – they have no power.

It is possible to keep your identity private in Panama without using a nominee. You can incorporate a Limited Liability Company in another jurisdiction, and use that company as the shareholder. In this way, you keep control of the assets while maximizing privacy. For more on this, checkout The Bearer Share Company Hack.

If you are listed in the Mossack Fonseca database, should you be afraid of the IRS and Panama Papers?

If you’ve been filing your US tax forms and reporting your transactions accurately, you have nothing to worry about. To you, the Panama Papers is a data breach that has compromised your privacy, but nothing more.

I suggest the Panama Papers won’t even increase your risk of an audit. At most, the IRS will compare your filing to the database, find that you are in compliance, and that will be the end of it.

Considering that your offshore bank is reporting your transactions to the IRS under FACTA, the Panama Papers is only giving unto the IRS that which they already receive.

On the other hand, if you have an unreported account or company in Panama, you should be very afraid. You know that the IRS will download the Mossack Fonseca database and use it to find those who are not in compliance.

If you’ve used nominee shareholders or as singors on your bank account to avoid FATCA, you are now in extreme danger. The IRS will consider this “wilful” and come after you with a vengeance.

But you still have time to take action and save yourself. If you signup for one of the IRS Voluntary Disclosure Initiatives before you become a target, you will pay only interest and penalties.

If you are deemed willful, and the IRS comes looking for you, you are at risk of significant jail time.

The IRS is currently offering five flavors of the Offshore Voluntary Disclosure Initiative.

Offshore Voluntary Disclosure Program (“OVDP”),
Domestic Streamlined,
Foreign Streamlined,
Transitional Relief, and
Delinquent FBAR.

If the IRS might consider your actions willful or intentional, you need the Offshore Voluntary Disclosure Program. This program one is the most costly and complex, but it will save your bacon if you are nearly in the fire. The OVDP gives you cover for your prior bad acts and a get out of jail card – not for free – but out of jail.

The OVDP requires you file 8 years of amended tax returns and FBARs, plut pay taxes, interest and a 20% penalty on whatever you owe. Now for the kicker, there’s also a 27.5% penalty on your highest offshore account balance. In some cases, that penalty may be 50% depending on the bank and timing.

If the bank where your account is located is under investigation when you apply for the OVDP, the government figures they would have caught you eventually and charge a 50% penalty.

If you are living abroad, or you have paid US tax on your income, but forgot to submit a form or two, you might qualify for OVDI Lite. Penalties for these programs range from zero to 5%, and the cost of getting back in the government’s good graces will be much lower than the OVDP.

No matter the cost, I can guarantee you that the risk of doing nothing far outweighs the financial burden of coming forward now.

To repeat, if you have an undeclared an account in Panama, you MUST take action before the IRS finds you. If you or your Panama structure are out of compliance, you should be very afraid of the IRS and the Panama Papers.

I also suggest anyone with unreported accounts or offshore companies in Panama should join the OVDI. Just because you were lucky and did not use Mossack Fonseca to incorporate your corporation, don’t think you are safe. I expect the IRS to pressure Panama to report all foreign structures owned by Americans. I think that this is just the tip of the offshore corporation iceberg in Panama.

I hope you found this article informative. Click here for my interview with Vice on who should be afraid of the IRS and Panama Papers. Please contact me at info@premieroffshore.com or call us at (619) 483-1708 for a confidential consultation on the IRS Offshore Voluntary Disclosure Initiative.

Offshore Tax and Business App – Free Download

12/06/2015/in Articles/by Christian Reeves

The Premier Offshore mobile app is now available in the Apple store!

And, for a limited time, it’s a free download. I just ask you give me a good rating in the app store and let me know if you have any issues.

Access my library of international tax and business articles any time from any iPhone or iPad.

Need to know the tax consequences of an investment while you’re in the heat of negotiation?
Whether you qualify for the FEIE or if you can do a 1031 exchange?
Read up on offshore inversions while your stuck on a plane?
Catch up on the latest and greatest second passport offer?
Peruse my 130 page tax and business guide before bed? I’m told it’s more effective than Melatonin and Ambian!

Download my app and you’ll have all of this and more at your fingertips.

I’ll be releasing exclusive content, offshore tracking tools and calculators, and more free downloads on the App in the coming weeks. For example, the 2016 International Tax and Business Guide will only be available on my App.

Fyi… My 2015 International Tax and Business Guide is currently available for free on the App.

I hope this application will become an essential tool for every investor, business person, attorney, accountant and expat. If you’re living, working, or doing business abroad, it will become your personal international advisor on the go.

And, if you have not succumbed to the Apple marketing machine – don’t have an iPhone or iPad – don’t worry. My Android App is in beta in the Google Play Store and will be released in a few weeks.

You can download my apple app by clicking the link below or by searching for “offshore tax” in the Apple store.

Thank you for your feedback and support!

Best Regards,

Editor, PremierOffshore.com

Puerto Rico Tax Deal vs Foreign Earned Income Exclusion

12/04/2015/0 Comments/in Articles, International Business, Offshore Company, Offshore Company Taxation, Puerto Rico Tax Incentives, Taxation/by Christian Reeves

The Puerto Rico tax deal is the inverse of the Foreign Earned Income Exclusion. Here’s why:

With a Puerto Rico tax contract you can live in the US, your first $100,000 or so in salary is taxable, with rest deferred at 4%.
If you live offshore and qualify for the FEIE, your first $101,300 is tax free in 2016 and the rest is taxable in the US as earned.

The FEIE is intended for those living abroad and operating a business that earns $100,000 to $200,000 max. The Puerto Rico deal is intended for those who live in the US or PR and net $400,000 or more.

This article will compare and contrast the Foreign Earned Income Exclusion with the Puerto Rico Tax Deal. There are still deals out there for Americans if you know how to work the system.

Here’s how the Foreign Earned Income Exclusion works:

If you live abroad and work for someone else, or have your own business, the Foreign Earned Income Exclusion is the best tool in your expat toolbox. The FEIE allows you to exclude up to $101,300 in salary in 2016 from your US taxes.

This salary can come from your own offshore corporation or from your employer. So long as the company is located outside of the US, and you qualify for the Exclusion, you’re golden.

If a husband and wife are both working in the business, they can each earn $101,300 in salary tax free for a total of $202,600. Take out more, and the excess is taxable in the US at about 40%.

Likewise, if you work for someone else, the amount you earn over the FEIE is taxable in the United States. If you work for yourself, and hold earnings in an offshore corporation, you can usually defer tax on these retained earnings.

To qualify for the Foreign Earned Income Exclusion, you must be 1) outside of the US for 330 out of any 365 days, or 2) be a legal resident of a foreign country, file taxes in that country, and travel to the US only occasionally for work or vacation.

What qualifies you a resident of a foreign country is a complex matter. For a more detailed article on the FEIE, see: Foreign Earned Income Exclusion Basics
The above assumes you are living in a low or no tax country and does not consider the Foreign Tax Credit.

The Foreign Earned Income Exclusion is an excellent tax tool for those willing to live and work outside of the US. If you wish to spend more than a couple months a year in the US, or to take out a salary of more than $101,300, the FEIE might not be your best bet.

Here’s how the Puerto Rico Act 20 tax deal works:

If you incorporate your business in Puerto Rico, you can qualify for an 4% corporate tax rate. That is to say, you can live in the US, operate your business through a Puerto Rico company, and get tax deferral at 4%.

In order to qualify, you must hire at least 5 full time employees in Puerto Rico and provide a service from the island to businesses or individuals outside of PR. Popular examples are affiliate marketers, website developers, investment funds, phone and online support providers, and any other business that is portable or operates via the internet. Really, any company that can put a division in Puerto Rico can benefit from Act 20.

If you don’t need 5 employees, we might create a joint venture that allows partners to share employees in one corporation that benefits the group.
EDITORS NOTE: On July 11, 2017, the government of Puerto Rico did away with the requirement to hire 5 employees to qualify for Act 20. You can now set up an Act 20 company with only 1 employee (you, the business owner). For more information, see: Puerto Rico Eliminates 5 Employee Requirement

If you, the business owner and operator, live in the US, you must take a “fair market” salary that’s taxable and reported on Form W-2. This might be around $100,000, but the exact amount will depend on many factors. The remaining net profits of the income attributable to the Puerto Rican company will be taxed at 4%.

This is basically the inverse of the Foreign Earned Income Exclusion. With a Puerto Rico contract, you pay tax on your fair market salary and defer the balance at 4%. With the FEIE, the first $100,000 (or $200,000 if married and both are working in the business) is tax free and the excess is taxable at ordinary rates.

I note that the Act 20 offer is a better deal than the multinationals have in Europe. Most of them are paying about 12.5% for tax deferral. Even at 12.5%, their tax contracts are under constant attack by the US and the EU. If you want to out maneuver Apple, and get an offshore tax deal blessed by the US government, move your business to Puerto Rico!

So, what’s different about Puerto Rico? As a US territory, it’s tax code trumps the Federal Code… or, more properly put, PR’s tax code is on equal footing with the US Federal code.

This is not the case in a foreign jurisdiction. So long as you hold a US passport, you’re subject to US taxation. The IRS doesn’t give a damn about the laws of your new country. They want their cut.

The US code is clear when it comes to Puerto Rico: Income earned in a Puerto Rican corporation, or as a resident of Puerto Rico, is exempt from US taxation. See: 26 U.S. Code § 933 – Income from sources within Puerto Rico.

The code as applied to foreign jurisdictions is incredibly complex. Try reading up Controlled Foreign Corporations, Passive Foreign Investment Company rules, and Sub Part F of the code.

I suggest a Puerto Rico tax contract is best suited to firms with at least $400,000 in net profits that can benefit from (or, at least, break-even on) three employees in Puerto Rico.

For more information on how to live in the US and pay 4% on corporate earnings in Puerto Rico, see: Blood in the Streets Offshore Tax Planning.

In contrast, the FEIE is great for those who wish to live outside of the United States and earn a profit of of $100,000 to $200,000 from a business. Additional tax deferral is available to business owners who live abroad operate through an offshore corporation.

I hope you have found this article on the Foreign Earned Income Exclusion vs. the Puerto Rico Tax Deal helpful. For more information, please send an email to info@premieroffshore.com or give me a call at (619) 483-1708.

Blood in the Streets Offshore Tax Planning

12/04/2015/0 Comments/in Articles, Offshore Company, Offshore Company Taxation, Puerto Rico Tax Incentives, Taxation/by Christian Reeves

You’ve heard the adage of investing when there’s blood in the streets… to buy when all hell is breaking loose and the market is at bottom. Well, now is your opportunity for some offshore tax planning while there’s blood in the streets. An offshore tax planning opportunity that will cut your corporate rate to 4%!

Baron Rothschild, an eighteenth century British nobleman, is reputed to have said, “The time to buy is when there is blood in the streets.” Those words are so true today in Puerto Rico and their offshore tax planning deal.

If you have not been reading the papers lately, PR is broke and the Federal Govt doesn’t want to bail them out. Specifically, the GOP says no way to a Puerto Rico bailout.

So the Feds have allowed Puerto Rico to create a Tax Incentive Strategy to try and bail out PR by offering a 20 year deal where companies only pay 4% on their retained earnings.

Yes you read that correctly only 4% – that is lower than what many very large corporations are presently paying to Ireland 12.5%. It’s the best offshore tax planning deal available to US citizens.

If you’re a small to medium sized internet business, or one that can spin off a division like marketing, call center, or similar group, here’s your chance to pay only 4% on your profits. Here’s how to make an offshore tax planning deal with a desperate government to defer tax offshore like the Apples and Googles of the world.

In fact, you can negotiate a offshore tax planning deal far better than the big guys. Most of their tax contracts in Ireland and Luxembourg are at around 12.5%.

The US government is offering you an offshore tax planning contract that allows you to live in the United States and cut your corporate tax to 4%. No need to move abroad, uproot your family, etc. It’s akin to the offshore tax planning tool generally referred to as a corporate inversion. These inversions have become all the rage where the business operations are outside of the U.S. but the headquarters and business executives remain here.

Here’s how this unique offshore tax planning opportunity works:

The U.S. territory of Puerto Rico is broke. The island is essentially bankrupt – owing creditors over $70 billion with no chance of repayment and a US bailout seems unlikely. But, as territory, PR is prohibited from declaring bankruptcy. As of December 1, 2015, they are out of cash.

Puerto Rico’s laws are a mixture of US Federal statutes and local ordinances. And that is where your opportunity exist: Income earned in a Puerto Rican corporation or as a resident of Puerto Rico is exempt from U.S. taxation. See: 26 U.S. Code § 933 – Income from sources within Puerto Rico.

In order increase employment, motivate investment, and benefit from it’s unique position in the US code, the island offers two tax deals:

1. Start a business in Puerto Rico with at least 5 employees, apply for an Act 20 tax contract, and receive a 20 year agreement with a corporate tax rate of 4%.

2. Move to Puerto Rico, be approved for an Act 22 contract, and pay $0 capital gains tax on assets purchased after you become a resident and sold during your time on the island.

Act 22 requires you to live in Puerto Rico for at least 6 months of the year. Act 20 does not. In this article I’ll focus on the Act 20 offshore tax planning contract for business owners.

If you don’t require 5 employees, we can create a joint venture company that will share costs and benefit the group. For example, if 2 partners come together in a “captive” internet marketing firm, they could license one business under Act 20. Different classes of stock and separate bank accounts could protect each partner’s interests.

To qualify under Act 20, your business should be providing a service in Puerto Rico to corporations or individuals outside of Puerto Rico. Internet marketers, website developers, investment advisors, hedge funds, call centers, and any other type of “portable” business are good candidates.

No matter your industry, if you can spin-off a division into a Puerto Rico corporation, you can benefit from an Act 20 contract. For example, I recently assisted a manufacturing company setup a web marketing group on the island.

Next, you need to hire at least 3 full time employees in Puerto Rico. These workers must be earning the minimum wage (currently $7.25) or better, be W-2 employees and not independent contractors, come into the office each day, and work at least 40 hours per week (full time).

Then, you, as the owner and operator of the business, must draw a fair market salary from the Puerto Rican company. This salary is taxable in the U.S. because it’s earned from work you did while living in the States.

The remainder of the income you earn in Puerto Rico is taxed at 4%. In other words, net profits in excess of your salary are taxed at 4%. You may retain these profits in your Puerto Rican corporation indefinitely tax deferred… an absolutely amazing offshore tax planning deal!

This gets you to a similar place as the Microsofts of the world… low cost offshore tax deferral. In fact, you’ve out maneuvered these giants by securing a deal at 4% rather than the typical 12.5%.

Puerto Rican profits must be left in the corporation, or can be moved to an offshore subsidiary. They can be used to grow the business and generally managed as corporate capital. You may not borrow against them or otherwise personally benefit from these retained earnings. They belong to the corporation until taken out as a distribution or dividend.

Now, here’s where things get really interesting in the Puerto Rico offshore tax plan:

With a typical offshore tax plan, profits are locked in the corporation. When taken as a dividend or distribution, they come out at ordinary income rates. Lower qualified dividend rates do not apply to distributions from a foreign corporation.

Puerto Rico provides a path to tax free dividends not available in other offshore tax plans. If you decide to move to Puerto Rico after a few years of operating the business, and qualify as a resident under Act 22, dividends from your Puerto Rican corporation will be tax free.

Of course, you’re not required to move to Puerto Rico to cut your corporate tax rate to 4%. You may leave the money in the company tax deferred, take it out years or decades later and pay the tax, or continue to use it to grow the business.You can hold the Act 22 card in your back pocket should you decide to play it.

We can assist you to implement the Puerto Rico offshore tax plan in two ways.

We can setup your corporate entity, negotiate an Act 20 contract in Puerto Rico, and write a custom a game plan / opinion letter on how to operate your Puerto Rican business in compliance with PR and US tax laws.

Provide a turnkey solution in Puerto Rico with office space, employees, etc. to maximize the benefits of your offshore tax plan.

Our turnkey solution includes analysis, tax and business planning, tax opinion letter with “action plan,” Act 20 application and negotiation, Act 20 license, and opening a PR bank account. It also includes sourcing and negotiating an office lease, hiring 3 qualified employees, 12 months of employee management, and 12 months of tax and business consulting service.

We will locate and hire 5 employees to your specifications. You can interview them by Skype or in person. We will also replace these employees if they resign or are not pulling their weight, manage their time, and handle all office and employment matters.

Our turnkey solution is intended to cover all first year costs related to setting up shop in Puerto Rico except salary, payroll taxes, and office rent.

I hope you have found this article on the offshore tax planning benefits of Puerto Rico helpful. For more information, please send an email to info@premieroffshore.com or give me a call at (619) 483-1708.

For more information, you might read my post comparing the Puerto Rico tax deal with the Foreign Earned Income Exclusion.

The Bearer Share Company Hack

06/09/2015/in Articles/by Christian Reeves

Bearer share companies have gone the way of the dodo. Here’s the offshore company hack to create a bearer share company like structure to maximize privacy and protection.

First, a word on bearer share companies. Back in the day, bearer share corporations allowed for anonymous ownership of assets and bank accounts. Whoever held the shares owned the offshore company. No public record of ownership was required.

Of course, the U.S. government doesn’t like anonymity… privacy in financial dealings allows U.S. citizens to cut out Uncle when it comes tax time… and the beast must be fed.

The U.S. launched an attack on offshore banking and bearer share companies in 2003 with the Patriot Act and has been hard at work stripping away financial freedom ever since. By 2015, all offshore banks have fallen in line and bearer share companies are no more.

Here’s the offshore company bearer share hack.

Let’s say you’re a law abiding citizen who wants to maximize the privacy and protection of your offshore company. How should you structure your affairs?

In my opinion, the best asset protection structure is the Panama Foundation and the best jurisdiction to incorporate an active business is also Panama. There are exceptions… such as an offshore IRA LLC is best formed in Nevis. But let’s stick with Panama for this post.

Fyi… even if your country of incorporation allows for bearer shares, no bank will open an account for your offshore company. So, bearer shares are effectively dead in every jurisdiction.

A Panama Foundation requires a founder and a foundation counsel. A Panama corporation requires three officers and three directors.

The Panama Foundation counsel is public record. Directors and Officers of a Panama corporation are also public record. Back in the day, we would work around this by appointing nominees and issuing bearer shares.

With bearer shares are out, the owner must be listed in the company or foundation documents.

The founder and counsel of a Panama Foundation may be either a person or an offshore company. That offshore company may be incorporated in any country.

Likewise, the directors and officers of a Panama corporation may be persons or corporate entities from any jurisdiction.

Now comes the hack: an LLC from Nevis may be formed with one member. The registrar in Nevis doesn’t disclose any information in the public record. Ownership of a Nevis LLC is totally private. These offshore companies make for excellent founders, council members, officers and directors.

In order to create a totally private offshore structure, much like a bearer share company of old, we form a Panama Foundation with the founder and council being Nevis LLCs. Then the Foundation incorporates a Panama corporation with Nevis LLCs as it’s officers and directors.

And you, the beneficial owner of the Nevis LLC, are in complete control of the Panama structure. You are the only signer on the bank accounts and corporate documents… none of the risk associated with turning over your assets to nominees.

And that’s the bearer share offshore company hack. For more information, please contact me at info@premeiroffshore.com for a confidential consultation. We will be happy to form your structure, open bank and brokerage accounts, and keep it in tax compliance.

Offshore Shelf Companies are of Little Value

06/03/2015/0 Comments/in Articles, Offshore Company/by Christian Reeves

I’m frequently asked about the use of offshore shelf companies in international business. If you are debating between forming a new offshore corporation or buying an offshore shelf company, read this article before spending the extra cash.

Some online incorporators market offshore shelf companies as the greatest invention since the numbered bank account. I think they’ve lost most of their value over the last few years as banks require more information on their customers (beneficial owners) and bearer shares have been eliminated.

Bottom Line: An offshore shelf corporation has no tax or banking benefits. It can be helpful in marketing because it makes it appears as if you’ve been around for a few years… not a startup for fly by night operator.

Since an offshore shelf company can be used in marketing without backdating any documents, or doing anything improper, go for it. If someone suggests falsifying records, run the other way.

Maybe I’m getting ahead of myself. Let’s start from the beginning.

What the heck is a shelf company? It is a corporation formed months or years before that has been sitting on the incorporator’s shelf unused. Because it has no history of operation, no bank account, and no creditors, there’s no risk in purchasing a shelf company.

The legitimate benefits of an offshore shelf corporation are:

1. The company is ready to use off the shelf. You don’t need to wait for the company to be formed, the name to be approved, or for the directors to be assigned. Forming a new offshore company in Panama takes 1 to 2 weeks.

You can market the name and age of the shelf company. For example, your letterhead and marketing materials can refer to “International Marketing Services (Panama), S.A., Established 2006,” if you bought a corporation by that name formed in Panama in October of 2006.

But, buyer be ware. The abuses of shelf companies are well documented. Many purchase these entities and then ask the director to sign back dated documents. While you can find some less scrupulous directors who are willing to sign for a few extra dollars, such a practice is obviously improper.

And, let’s say you go through the trouble of buying a shelf company and faking up the documents for whatever reason. Now what? If you are audited by the U.S. IRS it will appear as if you’ve owned an unreported offshore company for years. They’ll hit you with all kinds of penalties. And what’s your defense? “errrr, I didn’t own the company for these years. I was just perpetrating a little fraud on my bank… nothing to concern the IRS.” Good luck with that.

Back in the days of Bearer share companies, these offshore shelf companies had some additional benefits. Whomever held the shares owned the company. No need to fake up documents… it was already in bearer form.

Unfortunately, the days of the bearer share company are long gone (more on this in a future post), as I believe are most of the benefits of the offshore shelf company.

Because of the nature of the industry, it is difficult to find a shelf company older than about 14 months. Here’s how these shelf companies typically come about:

Offshore companies are usually formed by the incorporator on behalf of a particular client. The client does not pay the fee or changes his mind, so the entity sits on the shelf to be sold to someone else. After 12 months, the annual dues must be paid, which the incorporator is not willing to do. Around the 14th to 16th month, the company is closed by the government registrar.

In fact, this happens quite often. At the time of this writing, I have 3 shelf companies sitting around collecting dust. If someone needs an offshore company immediately, great. Maybe they’ve traveled to Panama and want to open a bank account while they’re here. They don’t want to hang around the hotel for a week or two for a new formation, so they buy a shelf company.

I hope this post on offshore shelf companies has been helpful. For more information on services please contact me at info@premieroffshore.com for a confidential consultation. I will be happy to form your offshore company, open bank and brokerage accounts, and create your asset protection structure.

How to Close an Offshore Company

11/14/2014/in Articles, Offshore Company/by Christian Reeves

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.