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Best IRA Investments for 2018

06/18/2018/0 Comments/in Articles, Cryptocurrency, Offshore IRA/by Christian Reeves

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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.

Where to buy international real estate in 2017

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How to invest your IRA into offshore hedge funds and active businesses

02/21/2017/0 Comments/in Articles, International Business, Offshore Bank Accounts, Offshore Banking, Offshore IRA/by Christian Reeves

You can invest your self directed IRA in mutual funds, hedge funds, and any active business. There are very few limitations on how you invest your retirement account. But that’s only half the issue. While you can invest in whatever you like, there all kinds of tax costs associated with investing your IRA into a fund or an active business.

Here’s how to avoid the tax penalties associated with investing your IRA into offshore hedge funds and active businesses.

Let me first frame the issue. When you invest your IRA in an active business taxed as a partnership or flow-through entity, or a hedge fund that pays out untaxed ordinary income, you have what’s called Unrelated Business Income (UBI). The IRS wants you to pay tax on these profits before they go into your IRA tax free or tax deferred.

There are two types of UBI that will trigger unrelated business income tax for retirement accounts:
Profits generated from a business/trade: When an IRA or 401k earns profit from an operating business that has not paid business tax on those profits before distributing them to the retirement account, those profits are taxed in the IRA.
Leveraged Real Estate Investments: When an IRA purchases real estate using a non-recourse mortgage loan, the debt financed portion of the property’s profits is subject to unrelated business income tax. Remember that all IRA loans must be non-recourse and that the owner of the account and the account itself may not guarantee the loan.

Unrelated Business Income is income that goes into your IRA from an active business or a leveraged real estate investment. It’s “unrelated” because it’s not the usual type of income an IRA will receive – passive and investment income.

Most UBI is untaxed profits from an active business. UBI is profits on which the business has not paid tax… such as a business operating as a partnership or within an LLC. If it were taxed as a corporation, the business would pay corporate tax on the profits and pass a dividend on to you. Because it’s a partnership or LLC, the net profits are not taxed before arriving in your IRA.

Unrelated business income is taxed in your IRA at Estate and Trust rates. UBIT doesn’t even get its own tables in the US tax code. You need to refer to the Estate and Trust rates

2016 – UBIT Rates
If taxable income is:	The tax is:
Not over $2550	15% of the taxable income
Over $2550 but not over $5950	$382.50 plus 25% of the excess over $2551
Over $5950 but not over $9050	$1232.50 plus 28% of the excess over $5951
Over $9050 but not over $12300	$2100.50 plus 33% of the excess over $9051
Over $12400	$3206 plus 39.6% of the excess over $12400

Basically, this means UBI is taxed at ordinary income rates.

Important tip: UBIT is reported on IRS Form 990-T. You only pay UBIT on profits from qualifying investments. If you lose money in an active business, you will owe no tax. However, you should file Form 990-T every year. UBI losses can be used to offset UBI profits in future years.

Here’s how to eliminate Unrelated Business Income Tax

Unrelated business income tax only applies to investments and transactions in the United States. If you structure your IRA offshore, setup a UBIT blocker corporation, and invest into foreign businesses and hedge funds, you will eliminate UBIT.

You can still access US investments, but you need to structure your investments offshore. If your hedge fund has an offshore feeder fund, you can setup an offshore IRA LLC and an offshore UBIT blocker, to enter the fund through the offshore feeder.

If you invest in a US fund through their US structure, you’ll pay UBIT on distributions. If you invest in a US fund through an offshore feeder, you will pay no UBIT.

The above is focused on hedge funds and leveraged real estate investments. UBIT also applies when an IRA owns an ongoing active business. Other rules apply to active businesses. For example, you can’t invest IRA money into a business or company you own more than 50% of nor can you invest in a business that pays you a “significant” salary.

The same goes for foreign real estate. If you buy US real estate with a non-recourse mortgage, you will pay UBIT on the gain. UBIT will apply to the portion of the property that was financed. So, if 50% of the cash came from your IRA and 50% from a non-recourse mortgage, you’ll pay ordinary income tax (not capital gains rates) on 50% of the profit when you sell the property.

If you invest in real estate outside of the United States, set up a UBIT blocker corporation, and use a non-recourse mortgage, you’ll eliminate this UBIT tax.

To maximize the benefit of foreign real estate investments with your IRA, you need to plan for both UBIT and local capital gains tax. You want to balance your expected returns against the capital gains tax rate you pay in the country where the property is located.

One of the best return on investment vs capital gains tax is Belize. Returns in Belize have been solid for the last 10 years and Belize has no capital gains tax. Yes, their capital gains rate on real estate is zero.

Some of the highest returns in foreign real estate can be found in Nicaragua. This market is growing quickly and attracting a lot of expats and investors. Their tax on rental profits, and their capital gains rate, are both 10%.

So, someone who buys real estate in Nicaragua with their IRA will pay total taxes of 10%. Had you done this in the United States, your total tax bill would have been 33% to 39% (per the chart above).

Investing with your IRA and a non-recourse loan in a tax free country like Belize will save you 20% on ordinary capital gains and 33% to 39% on the gain from your mortgage (UBI gain). Investing in a higher returning and higher tax rate country like Nicaragua will save 23% to 29% in taxes.

UBIT will also apply to an active real estate business. If you buy a hotel, acquire land that you divide up and build homes on, or buy a multi-unit apartment building, you’re probably a dealer in real estate or a real estate professional. Unrelated Business Income Tax will apply to all income earned in your active real estate business.

That is to say, if your IRA operates as a dealer in real estate, you must pay UBIT tax on your profits.

Note that UBIT does NOT apply to passive real estate investments if you don’t use leverage or a non-recourse mortgage. If you buy a couple of rental properties, you’re probably a passive investor. If you buy a hotel or otherwise operate a real estate business, you have UBIT issues.

I hope this article on how to invest your IRA into offshore hedge funds and active businesses has been helpful. To setup an offshore IRA LLC or a UBIT blocker corporation, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

Can I buy foreign real estate with my IRA?

02/06/2017/0 Comments/in Articles, Offshore IRA/by Christian Reeves

The number one question I get on offshore IRAs, is “can I buy foreign real estate with my retirement account?” The answer is a resounding yes. You can buy raw land, a home, condo, office building, or anything else you like outside of the United States within your retirement account.

In fact, you can buy or invest in just about anything offshore. The only limitations on your IRA are found in Section 408 of the Internal Revenue Code. This says you are prohibited from investing in life insurance, collectibles, and certain coins (collectable coins that are not 99.99% pure). Other than that, you can place whatever you like in your IRA.

Foreign real estate is the most popular investment with our offshore IRA LLC clients. They choose real estate as a way to further diversify out of the US and out of the dollar. To take some cash off the gambling table in the time of Trump and to help grow retirement wealth or turn it into income from rental profits.

There are two ways to buy foreign real estate in your IRA. You can setup a self directed IRA and ask your custodian to make the investment. This is best if you will have only one international investment and don’t want to open a foreign bank account for your retirement account.

The other option is to take your entire retirement account offshore. Get rid of your custodian and take over management of your IRA. Get the entire account out of the United States and under your control.

You can do this by forming an offshore IRA LLC owned by your retirement account. Then this LLC appoints you as the manager and opens international bank accounts at institutions that understand US IRA rules.

The last step is to instruct your custodian to invest your entire IRA into this newly formed offshore IRA LLC. Once the cash is transferred into the IRA LLC bank account, the custodian’s control ends and yours begins.

From here you can buy and sell foreign real estate, trade stocks, buy physical gold, and generally manage the assets of the account for the benefit of your IRA. You are to act as a professional investment manager and “always work in the best interest of the account.”

Once you’re installed as the manager of your offshore IRA LLC, you’re responsible to follow all of the US rules imposed on professional investment managers. This basically means that you can’t personally benefit from your retirement account.

So, you can’t buy a house and live in it, can’t borrow from the account, can’t use IRA funds to pay off an existing or personal mortgage, and can’t combine IRA money with after tax money in one offshore account.

These rules are detailed in IRC Section 4975 and referred to as prohibited transactions. A prohibited transaction is any improper use of an IRA by the account owner or account manager (both of whom are now you), beneficiaries, or any disqualified person.

Examples of prohibited transactions include:

Borrowing money from your IRA
Selling your property to your IRA
Using your IRA as security for a loan
Buying property for personal use

Most of these are self explanatory. I should point out that you are allowed to use loans to by foreign real estate in your IRA. You are just prohibited from pledging your account as collateral for that loan. To put it another way, you can borrow money to buy foreign real estate with a nonrecourse loan. You can’t borrow with a recourse loan that’s guaranteed by the IRA or by you personally.

Above I said that these rules apply to you, beneficiaries and disqualified persons. Disqualified persons are defined in IRC Section 4975(e)(2). Here are the most common disqualified persons:

The account owner (obviously)
A person providing services to the plan such as an attorney, CPA, real estate agent, investment advisor, etc.
A business, corporation, partnership or trust of which you own 50% or more (ownership or control / voting rights)
Your spouse, parents, grandparents and great-grandparents, children (and their spouses), grandchildren and great-grandchildren (and their spouses).

The term “disqualified person” does not include siblings (brothers and sisters) or aunts, uncles and cousins of the IRA owner.

With all of those caveats, you are absolutely allowed to by foreign real estate in your IRA. You can do it through a custodian, if you don’t mind having him in control of the property, or setup an offshore IRA LLC to handle the transaction.

I hope you’ve found this article on whether you can buy foreign real estate in your IRA to be helpful. For more information on taking your account offshore, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We have been assisting clients get their accounts offshore since 2002 and will be happy to work with you.

Just remember that there are risks in taking your IRA offshore. You must follow all the IRS rules and act in the best interest of the account. This means you’ll need ongoing support and an incorporator / advisor who’s an expert in these US rules. If you don’t hire Premier, hire someone in the United States. For more on why you need a US expert, see: Risks in Taking Your IRA Offshore.

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.

Offshore Money Management Business: How to Accept Client Funds and Deposits

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

If you want to receive client funds into your offshore account, you must have a license or set up a specially designed offshore structure. Whether you’re raising money or managing money, if you’re not the owner of the cash in your offshore bank account, you will need an offshore money management license. In this article, I will describe how to accept client funds and deposits offshore.

First, let me explain what I mean by client funds. It’s money that doesn’t belong to you, the owner of the offshore company. The most common examples of “other people’s money” in offshore accounts are brokerage firms, FX or Bitcoin exchanges, and anyone who manages or invests money for other people.

This does not include income from selling a product or a service. Nor does it include money invested by shareholders of the offshore company. So long as those shareholders are disclosed and provide due diligence documents to the bank, and you’re operating a business, not an investment pool, the account will be in compliance.

I should point out that most offshore banks will limit the number of shareholders… not for legal reasons, but for practical ones. No bank will want to put in the time and effort to research 50 shareholders investing $5,000 each. That doesn’t make economic sense for a bank. In most cases, you will be limited to 2 to 5 shareholders per offshore company.

Also, even if all of your shareholders are approved, no offshore bank will allow you to operate a money management business without a license. You can’t combine client money into a pool and invest it for their benefit, even if they’re all shareholders of the corporation.

With that in mind, here’s how to accept client money as an offshore investment advisor.

Power of Attorney Model

In my opinion, the most efficient offshore solution for private wealth managers is the Power of Attorney model. I’ve seen the POA model work well for investment advisors with over 2,500 clients, all with managed accounts in Switzerland, and for smaller firms with accounts in Asia and the Caribbean.

You simply form an offshore company for each and every client. That offshore company is in the name of the owner (your client) and opens an account at the bank you wish to trade through. Then the client gives you (the investment advisor) a Power of Attorney over his or her company’s bank account.

With that Power of Attorney, you can invest the client’s funds per your agreement. You have full control without the need to be licensed as a broker or as a brokerage in the country where you’re trading.

The POA model completely eliminates licensing and regulation issues. It also allows you to bring client money together in an omnibus account or into a hedge fund. When combined with a white label trading platform, available from major international banks, you will present a solid image and back office to your clients.

The limitation of the POA model for managing client funds is obvious – the cost. You will need to form a separate LLC or corporation for every client and go through the account opening process at your trading bank for each.

Depending on your jurisdiction, an offshore company might cost $2,000 to $3,500 to setup and $850 per year to maintain. This cost is typically borne by the trader, so this model only makes sense for those managing larger accounts.

Bottom line: if you want to open accounts at major banks in Europe without setting up a fully licensed brokerage, the POA model is the way to go.

Bank License

Let’s jump from the easiest and most efficient option to manage client money offshore to the most complex and burdensome. If you want to go big into offshore, consider forming a fully licensed and regulated offshore bank.

An offshore banking license from a country like Dominica, St. Lucia, or Belize might cost $70,000 to $300,000+ and require capital of $1 million to $5 million. In addition, you will need a solid board of directors, 5 year business plan, an office with employees on the island, and licensing will take 6 to 16 months to complete.

Once you have your bank license, you will need a correspondent bank account. As no bank will bother to open a correspondent account for a bank with only $1 million in its coffers, you will need significantly more capital at this stage.

There’s one interesting hybrid license available to U.S. investment managers. You can form an “offshore” bank in the U.S. territory of Puerto Rico with only $550,000 in capital. U.S. Federal laws apply on Puerto Rico, but U.S. tax laws do not. This allows you to operate a bank from the island and pay only 4% in corporate income tax.

For more on Puerto Rico’s offshore banking statute, checkout: Lowest Cost Offshore Bank License is Puerto Rico.

For more information on offshore bank licenses in general, please review my articles below.

Best Offshore Banking Jurisdictions
Offshore Bank Advertising Rules (a review of Reg. S)
Offshore Banking Licenses (on lowtax.net)
Capital Reserve Requirements (on lowtax.net)
Correspondent Accounts for Offshore Banks (on escapeartist.com)

Brokerage License

Brokerage licenses are available from a number of jurisdictions. The lowest cost and capital requirements are in Belize, Anguilla, St. Lucia, Nevis, Seychelles and St. Vincent. The top offshore jurisdictions are Panama, Cayman and BVI.

We do not offer licenses from Comoros or any African nations. For my thoughts on a similar topic, see: Gambia Bank Licenses are a Scam

The cost to secure a brokerage license in Belize is around $35,000 and the capital required is $50,000 to $150,000 depending on a number of factors.

Licenses from the countries above do not require you pass an exam or receive a personal license (like a Series 7). The corporate brokerage license will require you demonstrate proficiency and standing in the industry, but not in your country of licensure.

Before selecting a jurisdiction for an offshore brokerage, a review of local rules should be undertaken to ensure your client base is compatible with FATCA and other island requirements.

Fund License

The next level down from a brokerage license would be a licensed or registered hedge fund. The best jurisdictions for a fund are Cayman and BVI, but licenses are also available from Nevis and Belize.

There are four options for an offshore fund in Cayman:

You can form a licensed fund, involving a rigorous investigation by the Monetary Authority of the fund documentation and promoters. These are rare (about 10% of Cayman funds) and allow you to accept investments of any size.
You can form a registered fund, which requires only a form setting out the particulars of the fund, together with a copy of the offering document and consent letters from the Cayman licensed auditor and Cayman licensed administrator. This is available to funds that require a minimum initial investment per investor of US$100,000. The majority of funds in the Cayman Islands are registered funds.
You can form an administered fund if you will have 15 or more investors. To be approved as an administered fund, you must have a Cayman fund administrator providing your principal office. The regulatory responsibility (and, thus the risk and liability) for the administered fund, which has more than 15 investors and which is not licensed or registered, is placed largely in the hands of a Cayman licensed fund administrator.
You can form a non reported fund in Cayman if you have 14 or fewer investors. Cayman will allow you to form a company and launch a fund without much regulation or oversight. Once you reach 14 investors (call it a proof of concept), you’ll need to step up to an administered, registered or licensed fund.

To set up a Cayman licensed or regulated fund, one would first form a Cayman company, then open a Cayman office or have a local registered office, and then file an application with the government. In order to be approved, the manager must have a net worth of at least US$500,000 and the manager and prove himself competent as a based on past work experience. The application process can take 3 to 6 months.

Most of the funds we set up are master / feeder structures for U.S. and international investors. Note that tax preferred investors, such as offshore IRA LLCs, come in through the offshore feeder.

For more on master / feeder funds, please contact me at info@premieroffshore.com for a confidential consultation.

Licensed but not Regulated Offshore Entities

In addition to funds, the Cayman Islands offers a licensed but not regulated option for FX and BitCoin firms. If you’re in the currency exchange or money transmission business, you might find Cayman one of the most marketable options… a jurisdictions that your clients will be comfortable with.

For a licensed Forex Brokerage operating in the Cayman Islands, see: Xenia.ky

For a licensed and regulated brokerage firm in the Cayman Islands, see: OneTRADEx.com

Note that, if you’re going to run a full-service brokerage, you must be a regulated entity. The licensed but unregulated option is available to FX and Bitcoin operators.

Another licensed but unregulated entity is a Panama Financial Services Company. This structure can be used to hold third-party funds or to operate an FX or Bitcoin business.

These structures are popular for holding client funds on behalf of a regulated entity from another jurisdiction. For example, you want to manage client money in Panama on behalf of your bank or brokerage licensed in Dominica. This is a way to outsource your investment management activities to a low-cost jurisdiction like Panama without setting up a full brokerage.

A Panama Financial Services Company is a cost-effective structure to accept client funds as an offshore money manager. Compliance is light because Bitcoin and FX are regulated by the Ministry of Commerce and Industry and not the Banking Commission.

The following activities require a banking or brokerage license in Panama, and thus may not be offered through a Panama Financial Services Company:

Securities broker-dealer activities including investment funds, managed trading etc.
Savings and Loan (financiera)
Fiduciary (trust company) services
Any banking services including credit and debit cards
Cash money transmittal services or money exchange (e.g. bureau de change)

For an example of a BitCoin exchange operating in Panama under this license, see: Crypto Capital

Belize Licensing Options

You can generally expect Belize to be the lowest cost reputable jurisdiction for licensed businesses. Licenses available in Belize include:

International money lending license
Money brokering services
Money transmission services
Money exchange services
Mutual and hedge funds
International insurance services
Brokerage, consultancy, and advisory services
Foreign exchange services
Payment processing services
International safe custody services
International banking license
Captive banking license
General banking license

For a list of applicable legislation, see: International Financial Services Commission, Belize

Conclusion

I hope you have found this article on how to accept client funds and deposits in an offshore money management business to be helpful. For more information on how to setup an offshore investment management firm, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

Lessons from Madoff: Investing Offshore & High Risk Transactions

07/12/2016/0 Comments/in Articles/by Christian Reeves

Investing offshore and asset protection have become a central theme of the Madoff case in 2016. The US trustee wants to clawback as many of the payments made by Madoff to his clients prior to the fund imploding. Those who got out early want to keep their gains. Only sophisticated parties investing offshore have been safe so far.

See the link at the bottom of this article for an update posted Nov. 23, 2016.

Here’s a bit of background on Madoff and the issues raised by those investing offshore in to his funds.

When you invest in to the US from an offshore company, you might be protected from government clawbacks. This is especially important when you make a high risk investment and that “opportunity” goes south. By investing offshore you can protect your returns from government seizure.

The case being decided this week involves the trustee attempting to take about $21.5 million from the billionaire brothers Charles and David Koch. They invested in Madoff’s US fund through an offshore feeder they controlled. In addition, the trustee has filed 86 cases and is attempting to collect $2 billion from offshore accounts.

To date, the trustee, Irving Picard, has collected $11 billion dollars from companies and investors in the United States but none from offshore. Profits earned by those investing offshore and through international structures have been out of the reach of the US government.

And, this being America, you can be sure that the lawyers are making a killing. Mr. Picard billed more than $10 million per month for a 4 month period in 2015. He’s billed about $700 million through June 2015… obviously working very hard in the public interest.

Once the trustee collects all he can, and takes his cut, he will distribute the remainder to every investor in the Madoff fraud. Each will get a pro rata share of the recovered money. Obviously, this will be pennies on the dollar for those who came into the ponzi scheme late.

And US judges have ruled in several cases, including this one, that money transferred overseas by Madoff to his investors is out of the reach of the US trustee liquidating Madoff’s company and personal asset.

The basic idea of the extraterritoriality defense is that US courts cannot impose their rules and laws on defendants in foreign countries (In re Bernard L. Madoff Investment Sec., LLC, No. 1:12-ms-00115-JSR, Dkt. No. 551 (S.D.N.Y. July 7, 2014)). This principle applies to offshore structures owned by US persons and offshore funds domiciled offshore and operated from the United States.

That’s the basic rule. How it gets manipulated in large litigation is another matter. You’ll find that the rules of law are often manipulated by lawyers to maximize their profits.

US trustees are financially incentivised to bill as many hours as possible to sue anyone and everyone they can find…. When a case like Madoff comes along, it’s a feeding frenzy.

Keep in mind that Madoff’s ponzi scheme was was the largest ever uncovered. There were an estimated $18 billion in customer losses and over 60,000 persons or entities have filed documents to collect from the trustee. Because of the amount of cash at their disposal, the litigators have filed cases in Austria, Italy, Bermuda, BVI, Cayman Islands, UK, Gibraltar, Ireland, Switzerland and Luxemborg.

Notice that countries with strong asset protection laws, such as Nevis, Panama, Cook Islands and Belize are not on this list. Filing claims there would be a waste of time, even with unlimited resources at your disposal.

That’s not the norm. In most cases, trustees have some financial constraint. They can’t spend $50 million to collect $5 million. In smaller cases, having invested from abroad means the US lawyers won’t even attempt to collect from you… they don’t have the budget to file claims in foreign jurisdictions.

The takeaway from this article is that offshore structures provide the savvy investor a level of protection not available to the average person. Where the US trustee has collected billions from US companies, funds, and individuals who took out profits from the Madoff scam, he has yet to reach the $21 million earned by Koch or the nearly $2 billion paid out to other similarly situated foreign and professional investors.

Please don’t read this article as a “how to guide” to build an offshore scam! The extraterritoriality defense for offshore investments applies only to innocent parties.

Picard isn’t accusing Koch and the other defendants in his many cases of being a part of the fraud. Koch took their profits 2 years before anyone knew Madoff was a giant ponzi scheme and had nothing to do with the crime.

Madoff’s offshore network was quickly dismantled by the US government. Once you’re accused of a crime, the extraterritoriality defense no longer applies. It’s only available to innocent bystanders (be they offshore companies or persons) and not the perpetrators of the fraud.

In the case of the Koch brothers, they invested in Madoff’s fund through an offshore feeder they owned. While Madoff’s Cayman feeder funds have been broken up for years now, Koch’s structure has held back the trustee.

UPDATE November 23, 2016: The US appeals court has ruled in favor of the Koch brothers, ending the case and preventing the US trustee from collecting nearly $2 billion from offshore companies and funds. For more, see the NY Times article, Kochs and Other Madoff Investors Are Winners in Fight Over Profits Held Abroad

I hope you’ve found this article on the lessons to be learned from Madoff and going offshore with high risk investments to be helpful. Please contact me at info@premieroffshore.com or (619) 483-1708 for information on setting up a business or fund offshore.

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