An Easy Way to Legally Avoid Taxes
Filed Under (Uncategorized) by editor on 14-12-2010
Tagged Under : belize ibc, countries that are great for kids, live internationally, quality of life offshore, residence in malta, tax avoidance, tax evasion, Vernon Jacobs
I was sitting in a cafe the other day, in a little tax haven country (Malta to be precise… check our article on residence in Malta: Malta, Little Known Tax Haven Within the EU), having just this conversation with another expat. Why on earth, we agreed, would anyone choose to remain in a high tax country and pay taxes against their will, when they could so easily move offshore or live internationally? The quality of life is better offshore, provided of course you do your research. There are countries that are great for business, countries that are great for kids, etc etc.
And you can still legally earn money in your home country, from your existing business, without paying any tax. How? By working from overseas. I found this example on Vernon Jacobs’ excellent Jacobs Report tax site.
QUESTION: Assume that a US citizen renounces citizenship and is now a sole citizen of the Federation of St. Kitts & Nevis. That person has an IBC in Belize through which he advises companies in the USA for a fee. However, that person does not physically need to be in the USA to perform the services and has no bank account in the USA. The Belize IBC doesn’t pay Belize taxes on the advisory income. If the Belize IBC pays a salary to the citizen of St. Kitts, the St. Kitts citizen doesn’t pay taxes in St. Kitts on the salary. Does the US government have any claim on this revenue stream?
ANSWER: No. An expatriate (one who has renounced US citizenship) is not subject to U.S. tax unless the income is deemed to be U.S. source income. Income from services is subject to tax in the country where the services are performed.
Therefore, provided the services are performed from offshore, the income is completely tax free.
The same principle applies in the UK, only UK citizens don’t need to renounce citizenship – they simply need to leave the UK and establish residence elsewhere. A UK Limited Company may have a full time employee, director etc working outside the UK. Provided that one is careful not to perform the job in the UK, then no tax is payable on the salary – which, of course, remains tax deductible in the UK company’s books.
With the ease of remote working by phone, over the internet, videoconferencing, Skype etc today – it is so easy to avoid taxes. Tax avoidance is completely legal and is good business practice.
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This is blatantly wrong and will land anyone who takes your advice in prison. There is an expatriation tax in the United States and it applies to everyone with a certain level of income or net worth, regardless of whether you renounce your citizenship. It lasts for ten years and applies when with income as low as ~$130k a year or a net worth of over $2mm.
http://en.wikipedia.org/wiki/Expatriation_Tax
JG: I beg to differ. First, if you look at the link you posted, it specifically says that this tax refers to US citizens who renounce their citizenship. So this tax is not ‘regardless of whether you renounce your citizenship.’
Beyond that, I don’t know exactly what you are saying is ‘blatantly wrong.’
We know there is an exit or expatriation tax in certain cases, though with good planning and legal advice its effects can be minimized or even avoided completely. This obviously depends on individual circumstances and is not the subject of this article.
The example given specifically refers to a person who has ALREADY RENOUNCED US citizenship (and therefore, one can assume, already paid the exit tax if liable to it… nobody said this could be done for free, did they?!).
The example shows how a FORMER US citizen with no US source income can live completely legally tax free.
Even if one can’t avoid the exit tax, a lot of people would think it’s well worth taking that one time tax hit in order to completely legally avoid all taxes on all future income. Or not?
[...] I would say to our European fans that any advice we give to Americans basically applies to you to… but you have one big advantage. While Americans have to acquire a second citizenship then renounce their first – a lengthy, expensive and emotionally charged process – all you Europeans have to do is move to another country… you can do it tomorrow if you want. As I said in my last article, you might be surprised, but life is often better offshore! [...]