Protecting your Forex trading with an offshore company.
Offshore companies are very often used for share or foreign exchange (Forex) trading.
While there may be some tax advantages in using offshore companies as owners of broker trading accounts, another instant benefit is total privacy of the beneficiary owner.
While this may sound insignificant to smaller or new, aspiring traders, majority of industry veterans will agree that trading large sums of money in your own name is not the best solution.
This is further amplified if the person trades other people’s money via the means of managed account solution (also known as PAMM in some cases). In such case it is literally reckless to have accounts in one’s own name.
The last thing a money manager needs is a disgruntled client who knows all his personal details!
Or consider the scenario when a prospecting money manager showcases his past performance statements – surely he would not want to have his personal details showing all over the prospectus. Arguably some limited privacy protection can be achieved by putting trading accounts in the name of a local jurisdiction company.
However, we always advocate using geographical and juridical separation in the form of offshore companies for significantly improved protection.
Opening your account in the name of offshore company:
A typical structure is to set up an IBC or LLC company in a country that does not require details of owners of the company to be publicly filed, with a corporate “nominee” director and shareholder as part of the structure. Despite of what you may have read elsewhere, you can open an institutional broker account on your own – it is not a complicated undertaking.
In most cases there is no need to outsource the task to offshore company provider. Most Forex brokers are well accustomed to offshore companies and open accounts without making any fuss and it certainly is not a controversial practice. In fact, some U.S. clients choose to use offshore companies to open accounts with non-U.S. brokers who would otherwise not welcome U.S. citizens directly due to the strict CTFC regulation.
This varies from broker to broker and as usual, you should check with the latest regulatory situation in your country.
If you are a larger volume Forex trader capable of opening USD $50-$100,000 trading account, we can make the introduction to a top tier liquidity provider based in London. This is just one of the many benefits we offer to our Members (see all the benefits here).
They only open institutional accounts, but offshore company (even if owned by U.S. citizen) can fulfill the requirement.
Speaking of Forex brokers, make absolutely sure you perform rigid due diligence before you open your account.
Generally speaking, only reputable brokers from well regulated financial jurisdictions such as UK, U.S., Singapore, etc. should be considered. The industry is unfortunately still plagued with unreliable, untrustworthy players.
Many of the brokers to avoid are based in offshore locations such as Cyprus, Panama, Belize, Mauritius, etc.
Please note that we are advising to avoid those locations to open a Forex broker account.
On the contrary, many of these offshore jurisdictions are perfect choice to open an offshore company holding your Forex account.
Remember that you should always seek good local tax advice as a first step. Opening offshore company with the sole goal of eliminating your tax can quickly land you in trouble.
CFC rules vary from country to country and your trading profits could be classified as locally arising taxable income. A tiny oversight in the structure of an offshore entity could result in it being deemed illegal at a later stage.
A competent and experienced tax adviser in the international tax field will ensure that those details are considered before you start operating. For example, Australia has a very strict tax regime. It is not possible to legally separate yourself from your income and still retain any control or benefit.
Foreign structures are not prohibited under Australia law, but when an Australian resident has ownership, control, indefinite or definite benefit of an offshore Forex trading company, generally speaking it will be deemed Australian for taxation purposes and will be subject to Australian tax law.
Brokers do not typically get involved in advising their clients on taxation issues, nor do they specifically report their client’s income to respective tax office. Some brokers, especially in the U.S. report interest earned (on your account balance or in some cases on balance of your open positions) directly to the tax office, but not the actual profit or loss from trading.
Again, you are better off talking to a qualified tax accountant or lawyer versed in offshore structures and CFC rules.
Can you afford to keep your trading account in your personal name?
Another benefit is that brokers typically treat institutional accounts with more attention and respect. In a way, it means that the trader “graduated” from personal, retail account to the next level – now he owns a trading company.
Bottom line, if you are going to trade Forex or are already a successful Forex trader and you deal in increasingly large size, you really ought to consider putting your accounts under the umbrella of offshore companies.
It may very well be that in the future you decide to trade other people’s money and having private structure in place will prove to be a prudent forward thinking on your part.