Secrets To Offshore Investing (Things You Should Know)

American Citizens and Foreigners that own property and assets inside the US or hold US Residency Status or Green Card status should read the following.  Did You Know?

As an American Citizen, you can claim an exemption for up to US$99,200 (2014 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 may claim they have the right to continue 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 new country of citizenship. 

As an American Citizen, if you formally declare yourself an expatriate and renounce your US Citizenship, the IRS may claim that they have the right to continue to tax you up to ten years after you renounce US Citizenship IF they think you are or have done so for tax reason.

The IRS considers you resident for tax purposes if you spend 183 days or more inside the US. 

IMPORTANT: US domiciled accounts 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 a benefit is NOT even reported.  Note: Just Make Sure The Beneficiary Is NOT A US Citizen.  How?  A Trust or Foundation, unless the beneficiary has another passport or citizenship, and has already renounced US Citizenship previously.

Offshore Investing & US Citizens

Over the years 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 continues.
 
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 today's 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 own steam.  
 
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 - although that fairly recent nuclear disaster would seem to be in contrast).  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, a person establishing an account as another CITIZEN or as a person providing a PASSPORT from a different country usually will not.   Some people may instantly say, this is all well and good, but such things do incur a cost and hassle to set up.  This is very true.  However, all things considered, it may not be such a large expense as a percentage of assets if we are talking about a overall long term tax savings in the six digits or more.  Of course the argument that such an idea is only really beneficial for those persons with a six-figure amount to invest, is somewhat valid.  But one must consider not only short term yearly income taxation but also things like inheritance tax as well when calculating all of these things out.