 |
|
| Send an Email Via Reply Form |
 |
Write an Email Message Direct |
 |
Weekly
Update Bulletin On-Line.........
.. In The News and Readers Write In (with our answers to Questions).......... |
| READERS
WRITE IN:
. Dear John, I just wanted to tell you how much I do enjoy reading your newsletter and that I do appreciate very much your time and trouble and effort in doing these weekly letters and the services that you do. I look forward to meeting with you in the DR some time in the near future . EDITORS REPLY: Thank you for the positive comments. . . Another Reader sent the Following: . Subject: Taxes even a CA could understand - Adapted from an article written by Ron Adams, a Canadian financial advisor: . Let's put tax cuts in terms everyone can understand. Suppose that everyday 10 men go to PJ's for dinner, The bill for all ten comes to $100. If it was paid the way we pay our taxes, the first four men would pay nothing; the fifth would pay $1; the sixth would pay $3; the seventh $7; the eighth $12; the ninth $18. The tenth man (the richest) would pay $59. . The 10 men ate dinner in the restaurant every day and seemed quite happy with the arrangement until the owner threw them a curve. Since you are all such good customers, he said, I'm going to reduce the cost of your daily meal by $50 (50% discount). Now dinner for the 10 only costs $50! The first four are unaffected. They still eat for free. Can you figure out how to divvy up the $50 savings among the remaining six so that everyone gets his fair share? . The men realize that $50 divided by 6 is $8.33, but if they subtract that from everybody's share, then the 5th, 6th and 7th men would end up being paid to eat their meal. The restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount and he proceeded to work out the amounts each should pay. And so the 5th, 6th and 7th men ate for free, the eighth paid $7, the ninth paid $10, leaving the 10th man with a bill of $33 instead of $59. . Outside the restaurant, the men began to compare their savings. "I only got $5 out of the $50 savings!" declared the 8th man pointing to the 10th, "and he got $26!" "Yeah, that's right," exclaimed the 5th man "even though I eat for free, I only saved $1. It's unfair that he got 26-times more than me! "That's true," shouted the 8th and 9th men. "Why should he get $26 back when we both combined only got back $13? The wealthy get all the breaks!" "Wait a minute," yelled the first four men who always ate for free. "We didn't get anything at all. Our situation didn't change at all. The system exploits the poor!" The nine men surrounded the tenth and beat him up. The next night he didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They were $33 short! And that, boys and girls and college instructors, is how Canada's tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore. There are lots of good restaurants in Switzerland and the Caribbean. . EDITORS REPLY: That sounds about right to me, and why quite frankly the US and other governments are starting to get very nervous. Which is to say, the people (middle class mainly) that pay most of the bills have had enough and are starting to leave. Stanley Tools is not the only entity that would like to tell the US government what they can go do with an adjustable wrench, and where they can go do it. . . In reply to the person that wrote in our last bulletin about opting out of the US tax system by writing to the government, turning in your driving license, putting brackets around postal codes regarding your address on letters, etc., - and possibly having the ability to obtain some sort of OTHER US passport as a sovereign citizen, some other readers comment as follows: . . One Reader Writes: . John, . I have heard such claims many times, however I have NEVER been able to see one of these "different" passports nor a copy of one. I seriously doubt their existence. I challenge ANYONE to provide a copy of one. . EDITORS REPLY: I have to say that I tend to agree, but then again, I try to be open minded enough to listen to any information someone has, even if it sounds somewhat unbelievable. . . Another Reader Says: . I would like to respond to the Canadian's comments about there being two types of US citizenship. Four years ago my spouse and I attended a series of seminars given by a pure trust organization where they educated us about the difference between a democracy and a commonwealth, a US citizen (slave) and a sovereign individual (American National). They also mentioned the technique of writing one's return address in such a way as to be out of the federal system such as putting parentheses around the zip code, etc. Their main focus was on the idea that the statutory system of this country is connected with the federal system and thereby has made all US citizens slaves of the state, so to speak, and invalidating the Bill of Rights and Constitutional rights. Their philosophy is that our true law of the land is the US Constitution as created by the founding fathers. As we all know, our Constitutional rights have been steadily eroded over the past several decades and are now in danger of being almost abolished if the powers that be have their way with the system. . In these pure trust seminars, we were also educated that a citizen could remove himself from the US welfare state system by following a complicated and time consuming process of returning their Social Security cards and thereby negating the contract in that regard. However, we were taught that the SS cards should be returned to the SS department, not the IRS. Other techniques for opting out of the system included creating pure trusts into which one would "transfer" all of one's assets such as homes, cars, and other assets. It was inferred that if we did this - then all of our assets would be protected from seizure by the IRS. Well, this may be true – BUT - John, you are correct. What may be true morally and legally often is, in fact, not accepted by the government agencies, the IRS specifically. A couple of years ago, I had a strong intuition to remove ourselves and our business arrangements completely from the pure trust organization whose seminars we had attended. It was the right thing to do because the IRS has made a special effort to go after such organizations and their organizers in the past few years. Just last week I heard through the grape vine that the man who had created the pure trust organization that we used to be affiliated with, has been indicted by the Grand Jury and is now facing complete ruin...both financial and personal. He will probably go to jail for a long time. He should have left the country with his family when he had the chance but he was too naive (or stupid) to do so - believing instead that because he was right (morally and legally) in what he was teaching, that the IRS would leave him alone. How foolish! Now I have also found out that the clients of this pure trust organization are being harassed and audited by the IRS. One of my best friends and her husband have almost divorced due to the pressure put on them by the IRS leaving business cards on their front door and calling them almost every day. After all this, it just amazes me that US citizens still think they live in a free country! . I have never heard nor seen any information about a so-called second US passport. I, too, would like to see one. I doubt that it would be accepted at customs though! . There are organizations here in the US that will interface with the IRS on behalf of non-filers (of US taxes). The organizations that have been most successful are the ones that use the existing IRS codes and statutory laws to respond to the IRS' demands for back taxes. Another technique reportedly successfully used is to expatriate from the US and repatriate to the state of one's birth. This also removes the citizen from the snare set by the federal government. But, I must say, that after all these years of education about this issue, I have come to the same conclusion as Roger Gallo. Namely, that expatriation is the only true, long-term answer. My spouse and I have therefore made plans to do just that in a couple of years. Unfortunately, things have gotten so bad here in the US that one must either remain as a slave to the system, or leave and disappear off the screen. I admire the folks who are demonstrating in front the IRS buildings and holding public forums, etc. but I will never attend such a gathering. To do so is just asking to have your life and your family's life, ruined. In my opinion, the high profile tax protesters are great people who are asking for a lot of grief to be poured down on their heads. I will never be high profile, no matter where I live in the world. . As a loyal US citizen (whose father fought in World War II for our long-lost freedoms) I must say that I NEVER thought I would be willing to give up my citizenship. It is so painful to do so, but the situation is getting completely out of control and I think we (the US) are in BIG trouble if our current President starts a war with the Arab world. Then we will see terrorism on US soil to such an extent that fear will rule the land. I still respect the office of the President, but I certainly do not respect the person who serves in that office at this point. . EDITORS REPLY: Thank you as always, for your comments and your information. I think it is safe to simply say, there is fantasy and then there is reality. I certainly salute those that wish to challenge the government either in court or otherwise over the tax system, but I also think it is sort like a mouse trying to push an eight hundred pound boulder up a hill (plus it’s raining). It is much easier and certainly less stressful to just get out of the rain instead. Stated more plainly, expatriate and do not bother to pontificate (putting yourself in jeopardy with the powers that be – as they do not care to hear what you have to say, plus they have the only keys to the jail cell and no amount of verbal protest will get you out – constitutional arguments or otherwise). . . Another Reader Writes: . John, . Could you tell me more about the Free Zones, and tell me the differences between Santo Domingo's and Panama's. Specifically, I'm interested in import/export, primarily via ship. I assume Santo Domingo has a large port. I know Panama does. The bulk of the import will come from China, and the bulk of the export will be to the US. A distribution operation could also be situated in the free zone as well. Is warehouse space available in both places, and how do warehouse rentals in the free zones compare with on-free zone costs? How does the free zone location of such a business affect taxes and duties imposed upon importation into the USA? If you would like to answer this in your newsletter, that would be fine with me - Thanks. . EDITORS REPLY: Thank you for your letter. Since I figured that there might be a number of other people with the same questions, I did decide to put it in the newsletter. . To start off, it really is not a question of simply Panama vs. the Dominican Republic with regards to Free Zones. Quite a number of countries have such Free Zone programs in place, with of course perhaps a few different wrinkles to each. In any event, there are a number of factors that one must consider, including labor costs, rental costs, access to transportation, etc., etc. As an example, I know of at least two companies that were considering leaving a Free Zone located in the Cayman Islands and moving to the Dominican Republic, as both labor and warehouse space rentals were dramatically lower in the DR. I do not think there is any real difference between Panama and the Dominican Republic with regards to shipping. Both have port facilities and shipping by container is not a problem. However, the other side of the coin is of course a key consideration with regards to US import tariffs or duties (if you are shipping to the US). My advice is to contact US customs and ask for a list of duties or tariffs for products coming from both countries in order to make a comparison. There are a number of options here, as it could be the case of using an offshore company as a billing agent, and have the products sent directly from China to the US (in which case, you might not want to even bother considering a free zone). Or, if for some reason you prefer to ship the items first to either Panama or the Dominican Republic, then of course re-ship them the product to the US. In other words, if some assembly work or finishing was required, then you might need space in a free zone for that purpose. If not, then you may wish to also investigate the duties for products shipped directly from China. . With regards to the Dominican Republic, it certainly is true that some items being shipping into the US have zero duty, while other items are of course charged a high duty. It really depends upon the product or item, so check the list specifically for the product you want to import (into the US) and see who has the lower rate (if there is even a difference). Using a free zone location in the Dominican Republic as a order fulfillment center, as some of our clients do, is another matter. That is to say, small packages shipped directly to retail customers usually go through without a word. It is the case of large container shipments that will encompass the issue or question of tariffs or customs. So, the other question is, how will you distribute and deliver your product? Directly to the retail customer, or will you send your product in bulk to a US company or distributor? . . Another Reader Writes: . John: . As always, I thoroughly enjoy your newsletter. Keep up the good work! . I have a question for you. The recent figures you cited indicates that depending on the size of the account, bank CD interest in the DR can be had for interest rates varying from 6% to 9.5%. What would be available to me for an account of $30,000 to $130,000? I thank you in advance for any guidance you might provide. Also, I recently looked into establishing a currency trading account with that firm you recommended in Dominica. However, I was told that they are no longer open to new investors. Do you know of any other such firms that have enjoyed comparable success and are taking new investors? . EDITORS REPLY: With regards to US dollar accounts in the Dominican Republic, I would say that one should expect at least 8% or 9% in a bank CD for US$100,000. Commercial Paper currently is paying about 10% to 11% as well. With regards to the Currency Trading firm we spoke of earlier, you are correct in that they have closed off the fund to new investors, as they would rather keep the fund smaller and more manageable rather than allow it to grow too large. However, they told me that they were planning a new fund for investors in the near future. Apart from that, there are of course other investment companies that we can suggest to clients also. Although, in terms of returns specifically in regards to currency trading, the firm in Dominica has done very well over the years, and the people running it seem to be quite reputable. . . Another Reader Asks: . Hi John, What is the best way to get one's money out of the U.S. without being red flagged? And, Is it possible to trade in the US stock market using an offshore account/brokerage firm in the DR? . EDITORS REPLY: In answer to your first question, there are three basic ways to transfer or send funds. Bank wire transfer, checks or bank drafts, and of course cash (physically visiting the home of your money and making a deposit). Rather than get into too many details, let us simply say that checks are often a better idea as they are not necessarily moving through (cleared through) a government central banking system, if that is one of your concerns. As always, cash is king, but difficult to take with you these days. Again, this is not about teaching people to be crooks or to aid any criminal activity, but I am of the opinion that is not the government’s business what you do with your money, if it was earned honestly (and especially if it has already been taxed). . To answer your second question, it most certainly is possibly to have even a discount brokerage account in the US, as one of the banks we work with will assist you in getting this done. In other words, they will get the account open for you, without your identity disclosed in the process, but it is your account and you are responsible for trading (on-line via password, etc.). In addition, there are some full service brokers that we can suggest, which have been very good at attending to our clients so far. . . Another Reader Asks: . Can you provide info about the charter fishing industry in the Dominican Republic? . EDITORS REPLY: Well, I would like to think that I know it all, but the honest truth is that I could not offer much information about the charter fishing industry. However, I can say that this is certainly a type of business or service that is lacking and many tourists (Germans especially) will pay up to US$100 per person per day to go out sport fishing in the Caribbean. I knew of one fellow that had a nice boat he chartered, which is to say it was a party boat, holding up to about 15 people. He charged US$ 100 per person per day, and he ran the boat every day (he had about 10 people per day on average). You can do the math, but even if you say he needed US$ 500 per day to cover fuel costs and pay the crew (which is an outrageously high assumption on my part), he was still making US$ 500 per day, multiplied by 30 days every month. What happened to him? I heard he was hiding out from the German authorities (taxes, ex-wife, who knows) and decided to move on and not stay in one place too long, although he was in the DR for at least six years, I think. In any event, he did not leave because he was not making any money or because there was no demand, on the contrary. Too bad he left, he was a nice guy and he let me fish for US$25, which I of course appreciated. . . Another Reader Writes: . Hi, . I just want to say I Love this Advisory Newsletter. The options are amazing, and having two small children I am concerned for their well being in this country (USA) of my birth. My problem is accessing the options available as I'm currently employed at roughly $14,000. a year and my assets consist of simply a small 401K, some stock-maybe a thousand worth, and a term life ins policy. Not much huh? It still appears to me that the benefits mostly go to the well heeled. If there are any options that I can avail myself of I do want to find them as this government is going to pot. Please try to keep the low income in mind if you come across any options that I could use. . EDITORS REPLY: Well, you are of course correct in the sense that one must consider the costs versus the benefits in anything that you do. Is it worth it to spend say US$3,000 to form an offshore structure when you are earning less than US$20,000 (and trying to just survive on that), the answer is no. However, certainly the idea of establishing a bank account or small investment account is within reach. Not to beat a dead horse, but using the Dominican Republic as an example, certainly one can open a US Dollar account with US$500 or a RD$ Peso Account for less than that. Many Dominicans in fact, working at so-called low level or low paying jobs in the US do send all the money they can back home to be saved or invested. I know many janitors (Dominicans working in New York) that were able to move back to the DR, pay cash for a new home and semi-retire after saving their money for 10 years or so. If you think about it, your money certainly grows that much quicker when you are earning up to 20% on your money tax-free (in Dominican Pesos). Even if we are talking about a savings account in US Dollars, in the Dominican Republic you might earn 4.5% tax-free. In the US, you just about have to pay the bank to keep an account open these days, so it is difficult to see the appeal. . . Another Reader Writes: . There are ways to take one’s IRA, SEP or pension plan offshore. Go to website: www.siamsite.com/115335.pdf and the information is made available. What is the latest on the DR Retirement/Investor conference you were planning to have? . EDITORS REPLY: With regards to the idea of moving your US tax sheltered retirement account or plan offshore, let me say that I have read the information presented and I am in agreement with the vast majority of what was presented. HOWEVER, it is very important to note or clarify what was explained or outlined and what was not. For example, most clients would ask: Is it possible to move funds offshore and not have to be subject to either an initial 20% withholding of the account balance, or be subject to taxation issues later on? In other words, many clients want to know if it is possible to somehow get the money out without having a tax reporting issue or tax liability involved. . The article states that it is perfectly legal for US citizens to partake in investments outside of the US with respect to monies invested in such accounts or plans, and I agree. The article then explains how to possibly go about it, which to some extent may be a bit complicated or costly for some people, but it can be done. Again, having access to offshore investments is a very different matter from escaping tax reporting, tax liabilities or even matters involving asset protection. The authors of the article discuss the idea of a foreign custodian for such funds and the idea that some asset protection may be achieved with this. Of course, it is also clearly stated that this does not eliminate the tax reporting issues and or liabilities, plus some US entity must still be accountable to the US authorities. Stated another way, you can pursue non US investments with your retirement money, but it is not so simple as asking your current custodian (Charles Schwab for example) to transfer your account to a bank in Switzerland (for example) and get away with not paying tax on such funds (at least not legally, directly or in such a way that it is blessed by the IRS). There were some loopholes that existed many years ago involving transfer of one’s US retirement account to a non US insurance company (offering a retirement annuity), but the IRS got wise to this strategy and cracked down. Which is why, by the way, the current regulations are written the way that they are. So, just make sure you read the fine print and understand exactly what the author is saying, which I generally would agree with. . With regards to an investment seminar, we have not put this idea off, but it is a question of going forward when the timing is correct. Meaning, we would like to put a program together that is much more than simply a sales pitch, but rather a worthwhile informative program. In addition, it is also the question of having enough people that all want to participate at the same time, as many of the resorts will offer discounts, but only in the off season and if we can guarantee a minimum. So, it is something we have as an open project as many other people have asked as well. . . Another Reader Writes: . Having read your informative website, we would like to ask a few questions: . When having a company in the Dominican Republic owner of a property, land and he executes a sale of the land, doe she pay taxes? An investor who buys the land pay taxes on such? Or even when he builds does he pay taxes on it? We have heard that a buyer of a real estate property in the Dominican Republic would pay no taxes for up to 20 years is that true? Does the banking system in the DR allow funds to be kept in foreign currencies? . EDITORS REPLY: All very good questions and also proof that information sometimes gets distorted when passed around at the beach bars or what have you. Taking your questions in the order presented: . The buyer normally pays title transfer taxes in the Dominican Republic, but sometimes the seller can agree to share in such costs either formally or as an aside agreement. So, regardless of who is selling the property, the above would apply. With regards to buying real estate with a Dominican Company, or more correctly capitalizing a Dominican Company with real estate, the allow prohibits dual taxation and there is a cost savings on a portion of the taxes in such a case. In other words, in theory you would already have paid a tax or registration fee to the government based on the capital stock value and therefore the logic is that you should not have to pay an additional tax on the value again. What is the difference? One of the taxes is actually lower than the other, but of course the higher the value of the sale, the larger the tax savings using this strategy. Of course, another option is to simply sell the company, in which case there is no property title transfer tax as the property title never changes (it still remains in the name of the company) saving both the buyer and the seller money. . If you build on raw land, depending upon where the land is located, you might be required to obtain local building permits, or you might not if in a rural area for example. Regardless, it is certainly true that at some point, the assessor’s office would put a valuation on the property (including the building or dwelling) and that would in turn be a function of the annual tax. However, to make it more confusing, if the home and property is your primary residence and has a certain value (or less than a certain value), then you are exempt from annual property taxes under an older law designed to encourage middle class home ownership and encourage builders to build. . There is much confusion and misinformation about real estate taxes in the Dominican Republic as many people think there are no real estate taxes at all (or some unscrupulous real estate agent told them so). The truth is that there ARE annual real estate taxes (with the exception of what I mentioned above). However, you have a better chance of turning mud into gold than to witness or even hear about a sheriff’s sale or forced property sale due to back due taxes. It just does not happen, as the police know better than to try and get a Dominican out of his house for past due property taxes (it would make the incident in Waco, Texas look like a tea party). So, if there are taxes due, the government simply waits for the time when you want to sell the property and change title, in which case they will refuse to do so until ALL the backs taxes are paid (plus a 50% penalty as well). This is why it is very important to do a title search, if for nothing else, then to find out if the existing owner has a tax issue outstanding. . There are some special cases and programs by the government whereby you might be exempted from paying annual property taxes for up to 20 years, but this would normally be the case if you were building a new factory (creating new jobs in a certain area) or were participating in some of the other settlement programs the government has. Apart from that, do not believe anyway that tells you there are no annual property taxes at all (as a blanket statement). Certainly do not believe it if you are a tourist simply buying a home or apartment somewhere. Although, all things consider, property taxes are certainly a fraction of what they are in the US or Europe. . To answer your banking question, the vast majority of banks offer ONLY accounts in US Dollars and Dominican Pesos (if they do offer both, as the ability to hold US Dollar deposits does require a special license from the Central Bank). However, with that said, there is one local bank in Santo Domingo that offers deposits in Euros, Canadian Dollars and other major currencies as well. . . 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: |