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THE NEWS:
. The following news article from FORTUNE Magazine discusses the US economy and the link to the full on-line story is directly below (we did not print the article due to lack of space, but do have the link). .. EDITORS NOTE: In the words of Alfred E. Nueman – What me Worry? I read somewhere that if your neighbor is out of work, but you are not, then it is a recession. If YOU are out of work, then of course it might be called a depression. All things relative depending upon how you personally are affected. However, what is certainly true is that both US corporate debt and personal debt are already at ALL TIME highs, not to mention continued increased US Government borrowing. Despite the advice of some to think Happy Thoughts, the underlying basic fundamentals are not there or are being ignored. Plus, some very negative economic results could be in the cards if an all out war with Iraq takes place. Of course, all of this is just speculation and we will have to wait and see – although I would personally rather watch from the bleachers (it’s safer). From most of the letters I have received from clients and readers, my feeling is that I am not alone in this sentiment. . http://www.fortune.com/html/popup/ten/ten1.html . THE CANADIAN PERSPECTIVE: . From the Globe and Mail (CANADA), Friday, April 19, 2002 THAT’S THE WAY THE COUP CRUMBLES, By Rick Salutin . In the spirit of playoff profiles of hockey contenders, I'd like to assess the prospects of the United States as the world's sole superpower. A team in a league of its own. For the country CNN calls the mightiest force in history, it's been a bad week. The Mideast: Two weeks ago, George W. Bush told Israel to end its invasion of Palestinian territory "without delay," then sent his Secretary of State to back it up. Israel ignored and defied him. In response, the U.S. did nothing and Colin Powell went home. This is not impressive superpower behaviour. Other governments took note. Egypt's president cancelled a meeting with Colin Powell and didn't even bother making up an excuse. . It was especially unimpressive since the Mideast is the most resoluble crisis in the world. Almost everyone knows the answer: a small but viable state for the Palestinians with security guarantees for Israel. It involves one sticky point: Israel's illegal settlements must be removed. I know the Israeli government denies this would solve the problem, which they claim is the "real" Palestinian motive: to destroy Israel. But the point is, the U.S. is among those who feel it can be solved this way, yet they failed to press. Just as striking is the fact that they could impose this solution without military threats, by sheer financial pressure, since Israel is massively dependent on U.S aid. But they didn't act. . Venezuela: As they say in Latin America, there has never been a coup in the U.S. because there's no American embassy there. Last week, the coup happened in Venezuela, ousting elected president Hugo Chavez. In previous weeks, "members of the country's diverse opposition" had visited the U.S. embassy (The Washington Post) and met "senior members of the Bush administration" in Washington who sent "informal, subtle signals that we don't like this guy" (The New York Times). The Pentagon spokesperson said she was "not aware" if the U.S. gave military support to the coup, and Bush spokesman Ari Fleischer suggested the President was pleased. There are many reasons they wanted Hugo Chavez out -- his social reforms, his opposition to bombing Afghanistan ("fighting terrorism with terrorism"). But never mind that, it's all standard, like U.S.-backed coups in Guatemala (1954) or Chile (1973) -- down to the pot-banging street protests and U.S.-allied labour leaders. They all come from the same coup cookie-cutter. What was different is that this time the coup crumbled and Hugo Chavez is back. For the first time, the superpower failed in a back-yard coup. . Afghanistan: It was a total success, right, except they're still there and still haven't accomplished their main objectives: catching Osama bin Laden and destroying his network. Overthrowing the government of Afghanistan was never more than a means to that end. This week, they said Osama bin Laden probably slipped through their fingers in December, and George Bush warned Americans that more terror attacks are likely, since "cells" are still out there. He might have added that the ranks of recruits to terror will enlarge considerably after his own failure to stem the Israeli assault -- among Palestinians and elsewhere. This is not a question of good or evil; it's an observable, predictable fact. . Of course, people go to see speakers they want to hear and dissidents always like to believe they're popular. The South African Communist Party had a well-known member called Comrade-The-Contradictions-Are-Sharpening, who explained at every meeting that the revolution was about to occur. On the other hand, eventually it did, sort of. It seems to me something is happening in the U.S., but I don't know what it is. As for Canada, it makes you think. Do we want our forces folded even further into theirs, under the new Northern Command they just announced? And those Canadian soldiers killed in Afghanistan -- proving again that the fighting there is far from over: Should our government have joined the U.S. contingent as it did, or should it have chosen instead to be part of the international peacekeeping force, helping to provide at least some counterbalance to the stumbly sole superpower? . EDITORS NOTE: Friendship does have its limits, no? Especially when supporting your friends (in a foreign policy sort of way) cost you the lives of your own citizens or money (with respect to negative effects on your economy). It is interesting to note how many countries actually picked up the tab and paid their share of the bills on time with respect to the so-called Gulf War (or to say still did not do so and still owe a few dollars, despite having had widespread political support from the leaders of such countries). I wonder what predictions we can make about a future war with the Arab World (which for sure will include more than just Iraq) and who will pay for it (in a variety or ways)? . . READERS WRITE IN: . John: . My business partner had a question that I would like you to answer. I will phrase the question so that you can put it in your newsletter. The question concern the safety of the money deposited in places like (Dominican Republic and Panama). A secondary question would involve the ease of withdrawing the monies at some future date, . Question: How safe are offshore bank deposits? Are the countries safe politically? . Notes: My partner mentioned that Bahamas base Internet Casinos were refusing to pay out winnings or deposits. I am not sure this is true or relevant but it is tainting the waters a bit. . EDITORS REPLY: This is an interesting question and one that many people ask, but it is sort of like asking how safe are American made cars? In other words, one must look at each country on its own merits (or lack thereof) just as one must look at each individual car company with respect to who has the best quality, etc. I cannot offer a blanket comment on each and very country in the world with regards to their individual banking systems for lack of space as being just one reason. However, I can say that the myth or the stereotype that many Americans have about banking outside of the US is not very accurate at times. . For example, many people have chosen to do their banking in places which are former British colonies thinking such places are inherently safer that Latin American countries both politically and in terms of local banking regulations (or we can also say other non English speaking countries as well). However, if you take a look at which countries have had problems in terms of so-called offshore shell banks that have folded up in recent years (or were closed by the government for improprieties) – almost ALL have tended to be in former British colonies, such as Grenada, Antigua, St. Lucia, etc., etc. What is the point? For starters, I have made the argument previously that banking regulations are extremely strict in many countries whereby the stereotype might be the opposite. Coupled with that, many countries that people think are safe or well regulated (English speaking jurisdictions) have often handed out banking licenses as if they were candy in the past, without much due diligence or strict capitalization requirements as a prerequisite. So, the end point is, take a look at each country based upon its individual merits and do not necessarily believe the news propaganda which tends to promote the idea that ALL banking outside of the US is wild and wooly. Yes, it is true that problems have existed in the past, but I think you will find it very interesting when you dig deeper as to in which jurisdictions such problems have occurred. In the case of the Dominican Republic, Panama, Hong Kong, and other jurisdictions I might discuss – If the question is do I think such jurisdictions are a safe place to invest funds – the answer is YES. . . Another Reader Writes: . Hi John . As you know, many people set up offshore accounts for privacy because there is virtually no privacy with any U.S. bank account. Government agencies, private information brokers, and investigators find it easy to get your credit card and bank account data. Offshore banks, located in jurisdictions with strong secrecy laws, give you an extra measure of privacy. However, the IRS has served a "John Doe" summons on AMEX and MasterCard who have both caved in and turned over their records of any U.S. taxpayer who might be using one of these cards issued by banks in over 30 countries (including Panama and Belize). Now the IRS has issued a "John Doe" summons on Visa International as well. . One way the IRS builds a tax-evasion case against you is to use credit card and bank records to show that your spending outstripped your reported income. If you can't prove that you made up the difference with savings, loans, gifts, or other income that need not be reported, then they assume you're a tax evader. The IRS is also looking for people who have more than $10,000 in offshore bank accounts, but fail to report it to the IRS. And indeed, people who used offshore credit cards in connection with their foreign bank account have been sent to prison for either tax evasion or failure to file the proper form. . My question is this: How strong are the Dominican Republic's bank secrecy laws? It's interesting to note that the DR is never mentioned in any of these sweeping inter-jurisdictional summons and unlike Panama and Belize, doesn't seem to be on the IRS target list. What's your view? . EDITORS REPLY: With regards to the credit card witch hunt matter, I have passed along my sentiments previously, and have stated my reasons for explaining why this is a wasted effort, so I will not repeat what was written already very recently (in fact an article from the New York Times pointed out some of the things I hinted at as well and you may wish to read what they wrote as well). However, you are of course correct in that the end goal is to build a case for unreported (and untaxed) income, although they are having a tough time in doing so. . The Dominican Republic does not have banking secrecy codified into law (as does Panama). In fact only a very small handful of countries in fact do have such legislation (banking secrecy by law). However, there are a sizeable number of countries that DO NOT tax bank account or investment earnings, which of course is an incentive perhaps both for locals and foreigners alike. To expand upon this, I have said before that ALL nations are in competition with one another for new investment money, new business, new jobs, and perhaps hard working, diligent new citizens as well. Each country therefore puts incentives in place to attract investment money or new companies, which is exactly what the US does by not taxing foreign owned brokerage accounts for capital gains. What is the point? Start to take a broader minded view of the world and what is possible (with regards to where you might bank or invest). It certainly is a very reasonable idea to form a Panama Foundation, for example, do some banking in Hong Kong, Peru, Sweden, Brazil and anywhere else whereby you might earn a good rate of interest and not be taxed (because you are a foreigner or because there is no taxation across the board for both foreigners and local citizens alike). . In such countries, because bank account or investment income is not taxable, it is not reported. Why should it be if it is not taxable? So, while you may not have banking secrecy in such a country, the fact remains that your banking information (and earnings) are kept out of local government databases. In effect, one might argue the same benefit as if banking secrecy existed. The interesting thing is that this applies to a number of countries not listed on the dreaded OECD bad country list, and may in fact be some of those very same countries which are members of the OECD (how ironic). Imagine, if you will, the US for example nominating them-selves on the bad country list because they (the US) do not tax foreign owned brokerage accounts. It will never happen, and this why many smaller nations being criticized for their own tax incentives think both the OECD and the US are nothing more than hypocrites. In summary, I guess the end point is, bank in countries not on the radar screen whereby you get the same tax-free and non-reporting benefits as in the so-called tax havens (believe me, they are out there and there are plenty of such countries where this applies, many more so than are on the naughty tax-haven list). . . Another Reader Writes: . I was reading the requirements to own a business in the Dominican Republic. From what I understand I need to live there 2 years first before I can open or buy a business? Is this correct? I am a Canadian Citizen and have visited your Country twice in the last year. I am looking to buy a bar/beach bar and work 9 mos of the year and buy a condo apartment in the Sosua area. What are the costs and can you give me further details. . EDITORS REPLY: This is 100% false. You do not need to be a resident for two years in order to establish a business or invest in one. However, like anywhere else, you should follow the local laws and obtain whatever licenses (if any), or register your business as you would be required elsewhere. With regards to a beach bar, I am not a real estate agent so I could not be of assistance in what costs are to buy one. However, I would say that you should try and expand your focus and point of view. There are many, many good business opportunities in the Dominican Republic. With regards to beach bars or restaurants in Sosua, there are already too many of them and not enough customer traffic (most are starving because there are too many, and people that stay at all-inclusive resorts certainly do spend money on food or drink outside the resort compound). . . Another Reader Writes: . John: . Many kind thanks for the information. In case you haven't heard, there is a new bill in the U.S. Senate called the REPO act, which is going to illegalize companies moving the base of incorporation offshore. (Max Baucus is one of the co-sponsors of the legislation.) My thought - if I am going into business, why not incorporate it offshore in the first place? . EDITORS REPLY: Good question. Why not incorporate in a jurisdiction that offers lower taxation rates and perhaps more legal security with respect to law suits and so on? In other words, start off on the right foot from the beginning. Makes sense to me. . . Another Reader Writes: . Dear John, . First of all, I want to thank you for your excellent newsletter and the comments from your readers. I live in Canada, but I know as a fact that there are two distinct type of citizenship in the USA. . 1. US Citizen - - If you are a US Citizen, then you have to file an income tax report to the IRS whatever you live in the USA or not. By the law, you cannot hide any income because you are implicitly an employee of the "US Government Corporation". Being a US Citizen is a voluntary act by requesting a social security number (SSN), and from this contract, you have to report your income. The IRS is not constitutional; however having a SSN is YOUR contract with the IRS to receive benefits (social security, pension, health, education, etc) in exchange of a portion of your income. Under these rules, you cannot have an offshore account and hide part of your income, because it is against "your contract" with the IRS. The IRS uses the same law as you and I. We could have a contract, and if one party fails to respect its part, then the other party can sue the faulty party. An audit done by the IRS is the same as your employer entering into your cubical looking for a document. Your employer does not need your permission to enter in 'your' cubicle/office. If you use your employer's equipment (say a computer, email, printer, telephone) for personal use, be careful; your employer has the legitimate right to record everything and use it against you if necessary. You have the permission to use the equipment; not the right to use it. If you have an SSN, you are an employee of the "US Government Corporation" with the permission to work for another company or work as a contractor, but ultimately the IRS has every rights to know about your income, where you live, what you do, etc. . 2. American National - - This is a free human being, having the right to to business with anyone without the approval or the obligation to report to any third party (e.g. IRS). As an American National, you get a DIFFERENT passport than a US Citizen, and you are free to travel anywhere you want. You don't have to file any income tax and you have far more rights, including heritage without taxes. . To return as an American National status and free yourself from the IRS slavery, you have to do the following: Return your Social Security Number (SSN) to the IRS (there is no official form for this, but you write them a letter). Never use or ask for government services. Return your state's driver license. Having a state's driver license implicitly implies you are a US Citizen. Have an international driver license instead. Don't use a zip code in your postal address. Zip codes are internally used by the US Government Corporation to designate US Citizen. When you enter your zip code, always place in parentheses () so it cannot be use legally as a proof of your US Citizenship. You don't have to live outside the USA to be an American National. It is important to notify the IRS to withdraw your SSN. Your SSN is a life contract and leaving to another country does not void your contract with the IRS. Of course the IRS will lie about the fact you can withdraw your SSN, but once you have written the letter, they cannot legally go against you for not filing a tax return. However, you still have to pay the IRS any money you owe them until the contract was voided. You don't have to hide from the IRS because you are not paying income tax. As a free sovereign American Citizen the IRS rules and regulations don't apply to you! . PS: It is important not to feel guilty for not paying income tax. The US Government Corporation does not only tax income, BUT CAPITAL. Each year, there is about 3% tax on all assets in EACH bank account having US funds - it is called inflation. If you have $1,000,000, then one year after you only have $970,000 because you paid $30,000 of capital tax to the government. So if you are "really wealthy", you are paying your "fair share" too. Signed - A faithful reader of your newsletter. . EDITORS REPLY: Thank you for your letter and your information. I find it very interesting, however my real concern is whether or not the folks with the guns and keys to the jail cell are on board with this idea. That is to say, there are a great number of people that tout such ideas, and in fact the items they point to (legal arguments, US Constitution, etc.) all sound logical and might in fact be correct. However, you as a person in the minority (and perhaps in the right with your information) trying to go up against the existing status quo results in a what would be certainly a tough fight. I am very curious if there has been anyone that has done what you propose, with success over the long-term. Also, I am very interested in this OTHER US Passport that you speak of. My experience has been that tax-protesters usually get locked up or dragged into court, but since it takes about 5 years for the IRS to catch up with them, they often think that by being left alone for all this time, it means they have won or that the government agencies are in agreement with the idea. In any event, as an open-minded person, I am willing to give the benefit of the doubt. I would be interested in getting more information and also would like to see this other passport. For example, if you could provide a sample of it (photo) and a list of government agencies to contact to try it out (to file whatever letters, etc.), I would be glad to pass it along to other readers. If it is that easy to send someone a letter and back out, I am willing to listen, but I have to say I remain skeptical. . . Another Reader Writes: . I just recently subscribed to and received your publication and really enjoyed MY 1st issue. You mention that you provide assistance with free zone applications and I would like to know just what this is so could you please explain? Thank you in advance for your assistance and thank you for presenting this publication. . EDITORS REPLY: Many countries offer what are called FREE ZONES, which are really nothing more than special industrial or perhaps even office parks with a special tax status. In other words, in order to attract new business, new investment and naturally new jobs, many countries have special legislation in place that allows you to move your existing business or set up a new one inside their country (in one of these Free Zone compounds) with the benefit of NO corporate income taxes for a given time (perhaps up to 20 years for example), no local sales taxes on products purchased locally for your business, lower labor costs (as the local wage scales may be lower, which has nothing to do with the government necessarily), and a whole laundry list of other benefits. Each country that offers this may of course have a few details that vary, but the idea and general benefit for the business owner is the same. In other words, both parties win. The business owner wins and the country wins (the benefit of new jobs for citizens, etc.). However, there usually are some wrinkles or restrictions that include the fact you cannot sell your products or services in the local market (obviously you would have an unfair competitive advantage cost and taxation wise over other local companies) or in some cases maybe cannot sell more than a very small percentage of what you produce in the local market. In other words, the idea is that you are principally exporting what you produce, but apart from that, it is a very good deal. . In the past, such an idea of a free zone was meant to attract manufacturers mainly, under the premise a new factory might go in (and employ say 300 people for example). However, as many manufacturers have already left the US to take advantage of this, it is now that case that many service companies are doing the same as well. That is to say, if you have a catalog business (sell your products mail order) or even a travel agency, what difference does it make where you are? So, you can just as easily take your orders and ship your product from a Free Zone inside the Dominican Republic just as easily as you could from Topeka, Kansas (or in the case of a travel agency - answer the telephone, mail brochures and service clients as well). In other words, the new businesses coming into Free Zones lately have tended to be such service businesses (which has the US really frightened). That is to say, most of your manufacturing left years ago. As a result you principally now have the case of a service economy in the US. If those businesses all leave (to take advantage or for the same reasons as the manufacturers), which they are starting to do, then who will be left? This, in my opinion, is why you hear about all of this OECD nonsense, unfair competition, etc., etc. Of course, the US could cut taxes, could make the local business environment at home more attractive, but they do not. Instead, they criticize. . In any event, getting back to your question directly, we do of course assist clients with incorporation services (in the Dominican Republic or elsewhere as you do not necessarily have to have a local company to be in a free zone) plus assist with the Free Zone License application as well. Most of the local governments are very open minded about approving what businesses may operate inside a free zone (everything from clothing or furniture to on-line casinos and internet mail order or even professional services, like an accounting firm) but they still have a fairly simple application process to go through first. As an example, if you said you wanted to install a factory to make nerve gas, I am sure they will turn you down, but everything else is pretty much on the table. The costs for this are very reasonable, plus rental space (in the DR) runs about US$4 per square foot per year. So, again one would have to calculate the costs vs. the tax and labor savings, but for less than US$10,000 total you can get yourself set up (incorporation costs if you do not already have a company, free zone license, rental deposit on space, telephone, etc.) and conceivably have a tax-free place to conduct your business from. . . Another Reader Writes: . John, . I have an interesting story for anyone who remains skeptical regarding the U.S. Postal Service's willingness to spy on private mail. I recently requested that a bank in Anguilla send me information. Several weeks later I received an envelope from the USPS which was stamped - Loose in the Mails. Inside the envelope was my information from the Anguillan bank, which had been removed from its original envelope. . I had been smart enough to request the information under a fake name, and I had requested that it be sent to my PO Box. Is it a coincidence that a letter from an Anguillan bank sent to a U.S. PO Box was opened? No way. . EDITORS REPLY: Well, this is something we reported on quite some time ago. I first noticed this little trick about four years ago. If you think it is just paranoia, my advice is to run a test and ask for investment, banking or financial related information from abroad. Chances are the envelope will be opened and resealed by the nice people at the US Post Office. There will be a stamp on it that says, caught in the machine, damaged in transit or whatever. . . One Reader Asks: . IS PANAMA STILL SAFE? (The following news story sent in) Panama Commits to Co-operate with OECD to Address Harmful Tax Practices: . 17/04/2002 - The OECD is pleased to announce that Panama has made a commitment to improve the transparency of its tax and regulatory systems and establish effective exchange of information for tax matters with OECD countries by 31 December 2005. Panama was among 35 jurisdictions identified by the OECD in June 2000 as meeting the technical criteria for being a tax haven. As a result of having made this commitment, Panama will not be included in the list of uncooperative tax havens to be issued shortly. Panama will be invited to participate, together with the other committed jurisdictions and OECD Member countries, in the meetings of the OECD's Global Forum to discuss the design of standards for the implementation of these and any similar commitments. The OECD looks forward to working with Panama and encourages other jurisdictions to come forward with similar commitments . EDITORS REPLY: First and foremost, we reported earlier that the President of Panama has said the matter will be put to a national referendum (public vote) some time in the future (whenever that might be). Public opinion strongly opposes disbanding the confidentiality laws that exist in Panama, so let us see what the voters think. . Secondly, December 2005 is three years away and a lot could happen in three years (such as the US getting bogged down with a war in the Middle East, which means they will forget about all this and start worrying about nerve gas attacks against Chicago instead). Thirdly, watch what people do and not what they say. Talk is cheap and if I know anything about Panama and other Latin American countries, they will YES them to death and figure out a way to make sure their economy does not go down the drain (such as reporting all accounts owned directly by US citizens – maybe and then again maybe not, but excluding accounts titled under Panama Foundations or Companies). Enough said, and you can figure that one out. Fourth, what did they commit to exactly? It simply says they agree to participate in a forum and improve the transparency of its systems. What does that mean? This sounds very vague to me, but maybe it stops the OECD from calling the presidents office each week, which is probably good. Fifth, and we have said this numerous times before, who says you have to bank or invest in the same jurisdiction that you incorporate in? Let us say that the public registry shows an incorporated company or foundation with three local Panamanians as directors (nominee directors). So what? Where is the bank account or the money? If a company or foundation is not required to report anything to the government and or if such an entity does not have any commercial activity inside of Panama resulting in the reporting of any income, then what? You have a company not connected to a citizen from an OECD country with no locally reportable or taxable income. So, what gets reported exactly? Read between the lines, it is not rocket science. Panamanians are not stupid, which is to say, they did not agree to send a computer tape to the IRS every year as the Bahamas did. . I will tell you another unrelated story. Remember the turnover of the Panama Canal December 31,1999 as was part of the legislation or treaty signed by then President Jimmy Carter? As it turned out, the Americans thought they were slick and destroyed all the maintenance logs and related technical information right before the turnover was to take place (or a few month before hand). The idea was to ensure that the Panamanians would have trouble running the canal on their own and go crying back to the US for help (asking them to please come back). Of course, unknown to the Americans, the Panamanians made copies of everything long before, figuring the US would try and pull some dirty trick (which of course they did). Have you heard any negative stories about the Panama Canal breaking down or not being able to operate since Panama took over? Do you think Panama really trusts the US government? I will leave it at that. . http://www.msnbc.com/news/741655.asp?0bl=-0&cp1=1#BODY . . This information has been compiled and presented by John Schroder of Ascot Advisory Services, for the benefit of clients and readers. Ascot Advisory Services provides assistance with such matters as offshore company formation, Panama Foundations, offshore banking, and special services in the Dominican Republic regarding residency, free zone applications, etc. For more information: |