Citizens and Foreigners that own property and assets inside the US
hold US Residency Status or Green Card status should read the following:
As an American Citizen, you can claim
an exemption for up to US$80,000 (2002 figures) for salaried income earned
abroad, while you were living and working outside of the US. However,
the IRS will still claim the right to tax you on all investment accounts,
bank account interest, dividends and capital gains - regardless
of where you are living (assuming they know about such accounts and can
have access to such accounts for confiscation, which is often very difficult
- if not almost impossible if your money is offshore).
As an American Citizen, regardless of
where you reside, The IRS claims the right to tax your estate for inheritance
taxes when you die (which is why offshore annuities
are a good idea - see below).
As a US Resident or Green Card Holder
(foreigners that hold residency status in the US), the same taxation rules
apply to you as to US Citizens.
As a Foreigner that owns investment
or brokerage accounts inside the US, bank accounts or real estate, the
IRS claims the right to tax you for US Inheritance
Taxes even though you are not a US Citizen, and even though
there may not be inheritance taxes in your own country of citizenship.
As an American Citizen, if you formally
declare yourself an expatriate and renounce your US Citzenship, the IRS
claims the right to take 50% of everything you
own (your assets) as an expatriation tax (which is why most
Americans get their money out first, and then simply go on vacation - a
long extended vacation whereby they do not return). You can thank the former
Senator Patrick Moynahan of New York for that one.
The IRS considers you resident for tax
purposes if you spend 183 days or more inside the US.
US domciled or registered mutual funds, stock and other investments are
subject to US inheritance taxes (estate tax). Offshore
Mutual Funds, and similar non US registered investments are
NOT, if the deceased person was not
a US citizen or resident at the time of death.
While it is true that many US Annuities
have a special feature whereby the annuity account becomes or is treated
as a life insurance death benefit disbursement, it is still included in
the deceased's estate tax calculation. Offshore
Annuities are not, if the deceased was not a citizen or resident
of the US at time of death. In fact, the disbursement of such policies
is not even reported.
Secret Back Door to Offshore Investments (and Banking)
Americans - and Other Related Topics
Schroder answers some commonly asked questions about offshore Investments
Copyright 2002 - 2003 Ascot Advisory Services
We have had a large number of American
Clients tell us that they are having difficulty establishing an offshore
bank account or investment account, and the truth of the matter is that
they are not alone. In fact, it would seem that things have gotten
worse, not better. In fact, one of the banks in Dominica that some
clients do business with, have informed us that they now require additional
documents and additional information about existing clients by order of
the local banking authorities. Ironically, in such a case, we are
talking about existing clients that have maintained their accounts in good
standing, in some cases for years and now all of a sudden, these clients
are suspect. What is this all about? Well, before we discuss
some ideas, strategies and information you probably did not know (the secret
back door), it is important to explain at least what is going on and why
(there are even more difficulties now than in the past).
First and foremost, it has pretty
much always been the case that all banks and financial services institutions
(offshore mutual funds, etc.) in so-called tax-haven jurisdictions have
been a bit more demanding and difficult than non tax-haven jurisdictions.
However, since the terrorist attacks in New York that took place September
2001, things have become more difficult across the board. The reasoning
or logic now is to stop the terrorists from having access to banking or
investment capabilities. Before, it was the drug dealers and so-called
money laundering, so it is really the same theme, with a new excuse.
Ironically enough, it has been reported in major news sources that the
terrorists already have converted their assets to cash, gold, precious
gems, etc. in order to save their money from being confiscated. If
such news sources are to be believed, then such persons are not even involved
with traditional banking or investment firms at all anymore, yet the pressure
Our opinion with all of this is
that it is nothing more then a continuation of pressures to capture tax
revenue, and to make it as difficult as possible for Americans especially
to move their financial assets abroad. In essence, the same tactics
being used to fight the so-called war on drugs is being applied to banking
and the financial services industry. To some extent, they are related
in that the thinking was, and is, to attack the financial resources of
such persons involved in drug related business activities, and now terrorism.
So, using the game plan for the drug dealers as an example, the idea was
to financially support military and police operations in other countries
to stop drug production, and to go after and find where such persons have
their money (so it can be seized). It all sounds like a nice idea
in theory, but the reality is that it has not worked. There are more
illegal drugs in the United States at the present time than ever (just
take an informal poll and sampling of everyone you know under the age of
40, a very high percentage of people in this age category not only use
substances, such as Marijuana, on a regular basis, but also have no problem
buying it either inside the US). In addition, such drug dealers are
wealthy enough and sophisticated enough to be one step ahead. So,
who suffers or has difficulties after all is said and done? It is
the average middle-class American citizen who earns his money honestly,
and simply wants to invest it outside of the US (which by the way, is perfectly
legal to do so). The final point really is that such matters have
been attacked at the wrong end. In the case of drug usage, one should
question WHY there is such a demand for such substances in todays society
(both in the US and Europe) rather than focus on the production.
After all, if the demand goes away, the suppliers will disappear on their
The same logic can be applied to
taxation matters as well. If citizens did not have a reason to bother
setting up offshore structures and or investing outside of their home country
for tax benefits, they would not. One way to stop citizens from having
a desire to take their money (and often themselves physically) elsewhere
is to reduce taxes and the bloated government spending that requires such
excessive and burdensome tax support in the first place. If the US
government, for example, passed a flat income tax of 15%, eliminated estate
and inheritance taxes (just to name a few things), the offshore incorporation
and financial services industry would suffer greatly as there would be
no business for them. I very doubt this would happen, but this is
the very real long-term answer.
In any event, understand that the
logic of attacking non-US banks and investment firms has been the order
of business as a rule, rather than fixing the actual problem (the Japanese
have a saying, fix the problem and not the blame). So, while none
of the institutions or the countries they operate in have any regulations,
rules or laws which might prohibit them accepting US citizens directly
(as an example) as clients, many do not as internal policy. Why?
They would rather not be bothered with the hassle and aggravation imposed
on them by the US governmental authorities.
However, here is where it really
gets interesting. Which is to say, that many of these offshore banks
or brokers will not accept accounts owned by US citizens, but they will
accept accounts owned by non-US citizens and or non-US entities.
In simpler terms, where as Mr. Fred Smith, US citizen, will have a hard
time getting an account open, an entity such as an offshore company or
FOUNDATION will not. And here is our first back
door strategy ownership of offshore investments or accounts via an offshore
juridical entity (Incorporated Company, Trust, Panama Foundation, etc.).
Some people may instantly say, this
is all well and good, but such structures do bear a cost and legal fees
to set them up. This is very true. However, all things considered,
US$3,000 may not be such a large expense as a percentage of assets if we
are talking about US$100,000 or more to invest or protect. Of course
the argument that such an idea is only really beneficial for those persons
with a six-figure amount to invest, is valid.
So, the real question then becomes
How does the smaller investor get to benefit or participate in offshore
investments? One answer might surprise you (and the wonderful civil
servants down at the internal revenue service as well). Which is
to say, the answer can be found with American Insurance Companies and American
Mutual Funds Companies that have offshore operations. That is correct,
your eyes have not deceived you. We said American investment and
There are many very good offshore
mutual funds and investment companies out there that will certainly accept
investors, without the hassle and aggravation encountered elsewhere.
The Guardian Investment Group
is just one example of a non-US affiliated company of this kind, but there
are many more well know American companies as well. You might be
thinking that it sounds too good to be true, and that there must be a catch.
Well, yes and no. One must realize that these offshore divisions
of the American companies are not permitted to open accounts or issue annuity
contracts to US residents, but what about US Citizens that are NOT resident
inside the US? The truth is that they can and do so, here is the
secret backdoor (number two).
Investors who have residency outside
of the US (and can prove it via some sort of residency or immigration card)
can of course easily demonstrate this and invest accordingly. However,
many of these companies ONLY require a non-US address and nothing more.
Meaning, if you know how to fill out an application form, then you can
participate as well. Such firms do not ask for utility bills, letters
of reference from your bank, priest or accountant. They do not even
ask for a passport or driving license. For obvious reasons,
I am not going to announce who these companies are, but we will of course
gladly make this information available to our clients and readers who send
us their contact information (send name, mailing address, telephone and
email to: firstname.lastname@example.org).
Indicate on the subject line, Secret Back Door
(and we will know what information you are asking for).
Another interesting idea for Americans,
which is shall we say, not so secret, is the new 412 retirement savings
plan passed into law this year (at least Congress finally has done something
right to help tax-payers).
Are you an American that owns your
own business, or are an executive of a company? Are you looking for
a way to legally, under IRS regulations, to shelter up to 99 percent of
your salary or earnings? Then you need to know about the new 412i
retirement plan legislation, passed this year by the US Congress.
You also need to us to learn more and get started. You can contact
us at either email@example.com
Place in the subject line 412i information,
and we will refer you to a highly qualified and reputable US based financial
planner than specializes in this product.
Here are some key points:
You can shelter up to 99 percent
of your salary or earnings. ALL of the contributions are tax deductible,
regardless of the amount. It is approved in writing by the IRS, as
opposed some other plans that only have a tax opinion letter. The
plan must be administered through a US insurance company (Jeff works with
one of the oldest and most secure insurance companies in the country).
It offers flexibility in that account holders can take a lump sum at retirement,
or elect to either take a monthly income (or continue deferring funds for
a later date). Also, existing plans, such as 401K and other types
of defined benefit plans are not penalized and can in fact be frozen (with
the choice to use the 412i plan going forward). Sub Chapter S business
owners especially, and our clients that are paid a consulting fee from
a non US Company should investigate this option as well (as a way to shelter
any income paid into the US).
For any other inquiries, please
use our Reply Form.