The 8 Most Important Rules For Going Offshore In 2015
Do Not Buy An Offshore Company Until You Have Read This!
Some nay-sayers might believe the idea of doing business offshore is dead. Governments, meanwhile, seeking ever-expanding access to more taxpayers’ money in order to expand their power, are keen to suggest there’s something shady or even illegal about going offshore.
Peter Macfarlane – Wealth Report
They are all wrong… plain wrong
I’ll address these two points briefly and indirectly a little later in this report. However, if the headline I chose for this new report attracted you, I’m guessing you’ve already seen through the anti-offshore propaganda –
You understand the many potential benefits of diversifying your holdings internationally.
You wish to explore the nuts and bolts of how and why to go offshore
That’s what this report is about.
In this report I will present the “Eight Most Important Rules of Going Offshore... for 2015“. That is: post FATCA, post UBS and Wegelin Swiss banking scandals, post FATF blacklists, etc etc.
This is about as up to date as you can find anywhere.
Rule #1: It’s Not All About Tax!
If you listen to the mainstream media rattling on, going offshore is somehow associated with tax evasion. I don’t know if these people are genuinely misinformed, or they just choose to lie for political reasons. Unfortunately, in this business you learn to be something of a cynic, and I think it must be the latter.
Saving or evading tax is rarely the primary reason for going offshore.
Well advised Americans, for example, will often structure their offshore assets using LLCs, since LLCs (even offshore ones from jurisdictions like Nevis, Belize and the Cook Islands) are completely tax neutral in the USA. Profits are only taxable in the hands of the owners. This feature is very attractive to Americans as it avoids the complex and costly reporting requirements involved with IBCs, which are traditional corporations limited by shares.
The IRS is just fine with this kind of structure because it doesn’t affect the taxpayer’s obligations either way. The client is happy too – because offshore investing at a stroke creates much better asset protection. The mere thought of having to hire lawyers, probably post a fidelity bond to cover the other party’s legal fees in the event of losing, and sue in a foreign court in a country that makes a business of asset protection…. all that stops most lawsuits dead in their tracks.
Besides asset protection, however, going offshore means flexibility and freedom.
You are operating in a less regulated environment. For business people who are sophisticated enough to manage their own financial risks, and who believe in the free market and an open economy, lack of regulation is one very good thing. You can save a fortune in legal and compliance fees, and most importantly of all, win back time to spend on productive activity like developing your business, rather than on complying with endless bureaucratic requirements.
Often you can complete a deal offshore, with no complications, in a day …something that might take weeks or months and thousands in lawyers’ fees to complete in a more regulated environment.
Let’s say an offshore entity owns the shares in an onshore business or property and you want to sell that interest. You simply transfer the shares in the offshore entity, a procedure that can be undertaken in a few hours, and there is no need to make changes to the ownership structure of the onshore business.
For individuals who have had modest success already in life, going offshore means access to international investments, accounts and currencies that may be off-limits to you based on your existing residence and citizenship.
Americans have it worst in this regard, since virtually all foreign financial institutions – even many under US ownership – refuse to deal with US citizens for fear of the wide-reaching implications of FATCA – the Foreign Account Tax Compliance Act.
Besides Americans, however, other people are also suffering from invasion of privacy and difficulty in accessing investment options. Where the US leads, countries like the UK and Australia typically follow: the UK has already proposed its own “Son of FATCA” legislation and the Revenue are actively harassing offshore banks.
Finally, there are many start-up businesses in the offshore environment. This is certainly not about hiding or even protecting monetary assets, since in this case the assets are hypothetical future income streams.
Most e-commerce activity can be perfectly managed in an offshore company using offshore merchant accounts. International trading operations, like buying physical goods from China and selling them to Europe, are also ideal candidates for being run offshore: back-to-back letters of credit from offshore banks can facilitate the deals, the parties can maintain confidentiality, and the profits can roll up tax free in an offshore structure until brought home.
So, in summary, going offshore is good for business!
Big governments, however, hate it, because offshore centres take power away from them. Globalization and widespread use of the internet have created a more level playing field where small, remote countries can compete directly with big, top-heavy governments.
You can now easily and legally cherry-pick legal and financial systems, effectively creating a free market in services where governments and the establishment (banks in particular) have traditionally held a stranglehold monopoly. Naturally, governments hate this – even those that pay lip service to promoting open and free trade. They feel they are losing control – and the fact is they are.
Is the offshore sector dead?
I can assure you it’s not. If it was, you wouldn’t be seeing so much uproar and political cafuffle about it. All the pressure over recent years about offshore banking and entities is precisely because the sector has grown so much. It has come of age. The “offshore advantage” that used to be reserved for the elite, the establishment, the politicians…. is now available to you, me and anybody with access to the internet.
Tax is just a tiny part of the issue, and legal tax reducing or postponing (same thing) your tax bill is a nice side-effect of going offshore. But the real thing at stake is control.
Rule #2: Asset Protection is not just about getting sued
“Asset protection” is a term originally coined by smart and expensive US lawyers, whereby assets such as property, businesses or cash are tied up in complicated legal structures like trusts, LLCs and foundations in order to make them harder to get at.
Please bear with me, as I’m going to go off at a bit of a tangent here to explain the traditional (and still very useful) style of asset protection first. After that I will move on to the point I consider more important: protecting your assets by hedging against macro-economic or political risks such as inflation, devaluation, currency controls and the like.
Traditional asset protection theory goes something like this: By putting various legal barriers in the way, what I call “fantasy lawsuits” are avoided, and/or their effects are mitigated.
Fantasy lawsuits are those with not much legal basis, where plaintiffs with doubtful claims go after the “deep pockets” of wealthy individuals and companies. These plaintiffs, who are nothing short of fraudulent, often end up winning because:
1) Judges and juries are often politically motivated to decide in favor of the “poor, down-trodden consumer” against big companies. For example, smokers who have known for decades that their habit was causing grave harm to their bodies, are now suing tobacco companies who are seen as big and evil ogres with deep pockets. And we’ve all heard of the woman who won a multi-million judgement against Macdonalds because she spilt hot coffee on herself.
2) In the US, “ambulance chasing” lawyers representing fantasy plaintiffs often get the lion’s share of the judgement in legal fees. The US legal system positively encourages fantasy lawsuits, and again other countries are following suit with an equally unhealthy culture developing of “sue first, ask questions later.”
3) Even if the defendant is sure he can successfully defend the case in court, he probably can’t afford the legal fees to do so. Just because he wins, doesn’t mean his lawyers will work for free – and there is no hope of collecting any fee award from a penniless plaintiff. Therefore, it’s often cheaper to agree an out-of-court settlement and just pay the plaintiff to go away. This in turn is a vicious circle, as word gets around that Mr Deep Pockets is paying people to stop bothering him, and encourages more fantasy lawsuits.
All these problems are effectively solved by using traditional offshore asset protection.
If the assets are legally offshore (all declared to the relevant authorities etc) it is still mighty hard for the plaintiff’s lawyers even to be sure there are any assets, let alone to identify them. Therefore “Mr Deep Pockets” becomes “Mr Penniless on Paper” – and that alone makes him much less likely to be sued.
Even if the plaintiff’s lawyers do identify assets held offshore, they will be forced to take legal action in a foreign court to enforce any judgments they get. Lawyers in offshore centres do not work on contingency: they will require large up-front retainers. Courts will usually require the posting of a fidelity bond to cover legal fees, typically $50,000 – $100,000, before action can commence.
Best of all is the ‘poison pill’ defence – a neat device using an LLC where a plaintiff who wins can end up being liable to tax on the profits generated by an asset, without actually gaining control of the asset or income stream.
OK…so traditional asset protection is very useful if you are in a high risk profession, such as a doctor. But most clients come to my firm for a strategy for protection against much broader macro-economic and political risk.
This is a grouping of risks that necessarily covers a lot of things, but the main risk I see is government. Basically, this kind of asset protection is for those who don’t trust the government.
If you believe that the state always has your best interests at heart, and will always see to it that justice is done, and that the government will ensure you and your family are kept healthy and wealthy through to your old age, then you won’t be interested in this kind of asset protection!
If, however, like me and most of my clients, you don’t trust governments an inch, then it’s really important to diversify your holdings and business interests internationally.
“If you haven’t done this yet… Its better late than never”!
If you already have offshore arrangements in place, you need to review them at least once a year to make sure they are still effective and compliant in this fast changing world.
You never know what the government will think up next… so your asset protection needs to be focused on preparing for the unexpected. Just as real estate agents say the three most important things about a house are “location, location and location,” I tell clients the three most important things about asset protection are “diversification, diversification and diversification.”
That said, the political risk that scares me most at the moment is that the major central banks (the US Federal Reserve, the European Central Bank, the Bank of England, and the Japanese) are all constantly printing more money. It doesn’t take a rocket scientist to see that this is completely unsustainable – and the longer they put off the inevitable, the worse it will be when it happens.
For most of the population, bliss is ignorance.
If they can look at their savings account statements every month and see the same amount in the account, they think they have the same amount of money. They don’t realize that the real value of that money is declining each time the printing press is fired up. This “stealth devaluation” is therefore very convenient for governments – much better than an overnight currency collapse or banks needing to be bailed out.
The end results, however, are the same.
For some analysts, some currencies are better than others. Some claim that the US dollar is safer than the Euro, because the dollar is the only safe haven currency. This is not true at all: first of all, it’ far from safe; but more importantly, the whole world’s central banking system is inextricably intertwined. For example, the Fed will support the Euro where necessary, and the ECB will support the dollar. All the while, more money is printed, backed by nothing. All the while, the dollar/euro exchange rate stays more or less the same, so an image of “stability” is maintained… when in fact this is all one huge conspiracy, a complete manipulation…
Anyway, this is the kind of asset protection we are helping people with a
lot in these turbulent times
You’ll be able to read plenty of articles and exclusive reports in the Q Wealth report members Area dedicated to these topics. How it works depends on your portfolio. At a basic level, it may be as simple as opening a multi-currency offshore bank account in your personal name.
At a more sophisticated level, it will usually involve a range of asset classes, and at least a part of your wealth should be in physical assets like gold, silver or real estate, that will still be there in the event of a closedown of the global financial system…..
You’ve just read the first 2 rules of Going Offshore in 2015
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