[machiavelli]

Just thought I try reaching out here since you guys (collectively) have such a great information.

As most of you probably know it's tax season here in the States..and after handing Uncle Sam a large sum of protection money I'm thinking there has be a better way. Now without having a full debate about morale obligations of paying taxes etc, let me just say that because I save more then I spend I don't get as much write offs/losses as a large corporation and fell unexpectedly into a high tax bracket because of growth in 2010.

Since my company is entirely based online I can virtually take it anywhere. And offshore banking/corporation is sounding more and more appealing.

To save on some legal fees I'm doing initial research on what/where/how's. So far I narrowed it down to Panama and the Bahamas, based on their laws, cost of living, culture and stability. Ideally it would be best if I can set up a 'satellite' office to do business but wouldn't mind spending few months there if I 'had' to

So am I headed on the right track with Panama and the Bahamas or the proverbial cliff? If anyone has experience or can point in the right direction that would be more than helpful!

[Vacancier Permanent]

I'm in the same boat as you, having an online biz and looking for overseas solutions for reducing tax to the max. I can't comment on Panama or the Bahamas, however, since I'm going to be spending a lot of time in Asia, I am seriously considering Singapore to register my biz there for the tax benefits. Have you thought about Singapore?
Here's some good info about doing that in Singapore: http://www.singaporestartup.com/why-singapore

(04-15-2011 05:40 AM)machiavelli Wrote:  

Just thought I try reaching out here since you guys (collectively) have such a great information.

As most of you probably know it's tax season here in the States..and after handing Uncle Sam a large sum of protection money I'm thinking there has be a better way. Now without having a full debate about morale obligations of paying taxes etc, let me just say that because I save more then I spend I don't get as much write offs/losses as a large corporation and fell unexpectedly into a high tax bracket because of growth in 2010.

Since my company is entirely based online I can virtually take it anywhere. And offshore banking/corporation is sounding more and more appealing.

To save on some legal fees I'm doing initial research on what/where/how's. So far I narrowed it down to Panama and the Bahamas, based on their laws, cost of living, culture and stability. Ideally it would be best if I can set up a 'satellite' office to do business but wouldn't mind spending few months there if I 'had' to

So am I headed on the right track with Panama and the Bahamas or the proverbial cliff? If anyone has experience or can point in the right direction that would be more than helpful!

[K-man]

Cayman Islands is a very common destination for US investors, but be warned that you will still have to file a US tax return, and pay tax on any US-source income.
As for the income sourced outside the US, the minute you touch it (repatriate earnings is the technical term) you are on the hook for taxes again.
So I am not sure what your tax savings are going to be, if you play by the rules. In fact, in my practice I've seen Cayman structures used when there are both US and foreign investors in a deal, and solely for the benefit of the foreign guys - for the US guys it did not make any difference.

[oldnemesis]

(04-15-2011 12:45 PM)K-man Wrote:  

Cayman Islands is a very common destination for US investors, but be warned that you will still have to file a US tax return, and pay tax on any US-source income.

If you're US citizen, you have to pay US taxes on all your income, not only the US-source income. Indeed, for foreign income there are some pretty high deductions (around 90K or so), but anything over that you still have to pay taxes for.

Quote:

So I am not sure what your tax savings are going to be, if you play by the rules. In fact, in my practice I've seen Cayman structures used when there are both US and foreign investors in a deal, and solely for the benefit of the foreign guys - for the US guys it did not make any difference.

This is true. It cost money in setup and support the "tax heaven", and a single IRS audit may easily bring you something like $20K in service fees plus penalties/fines from IRS upheld by the tax court. Therefore the threshold when it is worth considering using tax heavens is pretty high - for 2010 it was around $450K a year. If you make less than that, it does not make any sense.

[machiavelli]

(04-15-2011 11:10 AM)Vacancier Permanent Wrote:  

I'm in the same boat as you, having an online biz and looking for overseas solutions for reducing tax to the max. I can't comment on Panama or the Bahamas, however, since I'm going to be spending a lot of time in Asia, I am seriously considering Singapore to register my biz there for the tax benefits. Have you thought about Singapore?
Here's some good info about doing that in Singapore: http://www.singaporestartup.com/why-singapore

You know? I never looked into that part of the world. But it'll mostly be off the menu for me because of the travel distance and most importantly the time zone. Just want to make sure the banks are opened when I need them

Also the BIG plus for considering Panama is their nice mixture of culture (with Columbia and Costa Rica right next door) and having Pacific and the Caribbean only 3-4 hour drive away adds to the lifestyle value. So besides the incentives they also have one of the most strict company privacy laws around (from my research so far). So if you haven't looked into Panama yet, give it a second look.

I narrowed down some criteria for the ideal starting point, maybe this can help to see if Singapore is a right fit. Also let me know if you (anyone) can add or subtract from this list:

1. Country has upward stainable growth (stable government)
2. No taxes, personal and corporate
3. Low cost and speed of incorporation
4. Have strong national banks with ease of access (online banking)
5. No exchange of your tax information with foreign tax collectors

[hydrogonian]

There is a big difference between tax avoidance and tax evasion. You have to pick which one you are attempting and then formulate a strategy.

For every year that you don't claim a foreign account that you have control over, the fine is 10K, I believe, per account.

So, that's not even including any evasion charges. You could do everything else legit, but if you don't claim an account and they find out, its the penalty that I just listed.

That's just general info. What I wouldn't do, if your goal is secrecy, or even liability reduction, I wouldn't bank in countries that are well known tax havens. OR, and this is important, that have laws that make it easy for process servers to execute and uphold notices of service (for litigation) in the country in which you will be banking. That is, if someone wanted to sue you here, and they needed to serve the company that is registered somewhere else, you want to make it so that it is legally very expensive of almost impossible to serve your company with official notice of the litigation. Without that, you cant be sued. No service of process, no litigation.

Try Asia.

[machiavelli]

(04-15-2011 12:45 PM)K-man Wrote:  

Cayman Islands is a very common destination for US investors, but be warned that you will still have to file a US tax return, and pay tax on any US-source income.
So I am not sure what your tax savings are going to be, if you play by the rules. In fact, in my practice I've seen Cayman structures used when there are both US and foreign investors in a deal, and solely for the benefit of the foreign guys - for the US guys it did not make any difference.

Personally staying away from Cayman Islands because of their recent open door policy with the US government. Also it's worth mentioning that my company is 100% virtual, don't have a single w-2 employees (all 1099 or outsourced), and the only thing that makes it a US company is where it is registered. I collect all revenue via online (from 60 countries) so it'll only be considered a US income source if it gets deposited into my US bank account, which it won't if I incorporate and collect money from a country without taxes.

So being in the 35% tax bracket...my savings next year will be 100% worth time and effort of setting an offshore business. (almost had a heart attack after my accountant went over the numbers!)

(04-15-2011 05:50 PM)oldnemesis Wrote:  

If you're US citizen, you have to pay US taxes on all your income, not only the US-source income. Indeed, for foreign income there are some pretty high deductions (around 90K or so), but anything over that you still have to pay taxes for.

Is there a 90k deductions for foreign income? Can you clarify?

[thegmanifesto]

oldnemisis-

"Indeed, for foreign income there are some pretty high deductions (around 90K or so)"

I thought you could deduct 90k if you lived out of the country for a year even if your money came from the US.

True or false?

[machiavelli]

(04-15-2011 06:29 PM)hydrogonian Wrote:  

and this is important, that have laws that make it easy for process servers to execute and uphold notices of service (for litigation) in the country in which you will be banking. That is, if someone wanted to sue you here, and they needed to serve the company that is registered somewhere else, you want to make it so that it is legally very expensive of almost impossible to serve your company with official notice of the litigation. Without that, you cant be sued. No service of process, no litigation.

How can they sue the company if it's a separate entity from yourself? And how could it be considered tax evasion or avoidance if it's a foreign corporate entity with no ties to the US, except that its CEO is from US? Would me being a US citizen automatically qualify it as a US company? I assume I'll have to pay taxes on the money I bring back as income (salary I pay myself) but I have no problem with that.

[K-man]

(04-15-2011 05:50 PM)oldnemesis Wrote:  

(04-15-2011 12:45 PM)K-man Wrote:  

Cayman Islands is a very common destination for US investors, but be warned that you will still have to file a US tax return, and pay tax on any US-source income.

If you're US citizen, you have to pay US taxes on all your income, not only the US-source income. Indeed, for foreign income there are some pretty high deductions (around 90K or so), but anything over that you still have to pay taxes for.

I am not talking about personal taxes here. If a corporation earns income outside of the US, it doesn't pay US taxes until the income is repatriated. Actually, if it is a foreign corp, there is no such thing as repatriation, but to spend the earnings you'd have to pay yourself a dividend, which is taxable.
However, there are different rules if the corporation is a PSC, or a personal service corporation, meaning the shareholders earn much of its income by personal services.
As everyone knows, the US tax code is a nightmare. Best to ask your CPA.

[hydrogonian]

Quote:

How can they sue the company if it's a separate entity from yourself?

I'm not just talking about suing, but sequestering records to the end of fact finding.

To answer your question: easy. If you have a controlling interest, in any way shape or form including signature power over accounts, than you aren't seen as separate from the company as far as tax liability goes and probably as far as any liability goes if the litigating attorney is good enough.

The strategy is to make it as difficult and expensive as possible to get information and to prosecute a case. However, the federal government has unlimited resources.

Quote:

And how could it be considered tax evasion or avoidance if it's a foreign corporate entity with no ties to the US, except that its CEO is from US?

See the above answer. You really have to look into this, as the IRS covers all of its bases. Read the law on it, which is readily accessible on the IRS website.

It is virtually impossible to 'avoid' taxes merely by incorporating offshore, that is unless you are being deceptive in some way or otherwise breaking the law. When that occurs, you are thereby evading.

Quote:

Would me being a US citizen automatically qualify it as a US company?

No, but it also doesn't matter that it is a foreign company as far as your tax liability is concerned. Its illegal to keep the money that you have earned expatriated without paying taxes.

Quote:

I assume I'll have to pay taxes on the money I bring back as income (salary I pay myself) but I have no problem with that.

Yes, and you have to claim all of your earnings every year. Meaning, that owning a foreign corporation doesn't allow you to keep money offshore to grow tax free. Look into it.

Some of the current loopholes (not sure if they are closed yet) allow(ed) US owned foreign corps to keep some money offshore without immediately paying taxes on it. The senate tends to periodically fight for such loopholes for their wealthy constituents.

However, I'm not sure how it works as there is no readily available info on how these mega corps are legally allowed to accomplish this. I'm sure that you would have to hire an expert attorney to guide you if you were to do something like that.

Quote:

Actually, if it is a foreign corp, there is no such thing as repatriation, but to spend the earnings you'd have to pay yourself a dividend, which is taxable.

I'm positive that you have to claim and pay taxes on all of the money that the offshore corporation makes every year.

Now, you don't have to pay yourself if its a C-corp, and thereby you can avoid the personal income tax.

However, you still have to pay corporate tax. When you eventually pay yourself, you have to pay the personal income tax in addition to the corporate tax that you already paid. But that's the same exact setup that is afforded domestic corporations.

In any corporation, if you don't need to keep the money in the corporation for further business activity, then its cheaper to "pass the money through" and pay yourself without paying the corporate tax.
Thereby, you avoid the corporate tax and only pay personal income and associated taxes.

However, I think that a lot of corp owners find many many ways to pay for a lot of their life expenses with the corporations money, thereby using money for life expenses that is only ever going to be taxed at the cheaper corporate rate.

There is an art to this, and its best to consult a CPA about the best ways to go about this. If you are audited and it is found for instance that you paid your vet bills with the corporations money, then there will be financial hell to pay.

Successful use of money taxed at the corporate rate, for life expenses and if done legally, is an example of '"tax avoidance" which is legal. As opposed to "tax evasion" which is illegal. Tax evasion is hiding your control of foreign corporations, hiding accounts, etc...

But like someone else said, you have to consult a professional. Actually, i would most definitely only consult an tax attorney who is well familiar with the taxation of offshore corporations. That should be the bulk of his business. Forget your run of the mill CPA's for offshore corporation strategies.

My non-professional advice is to always stay on the right side of the IRS, and do everything else in your power to protect yourself from absolutely everyone else (ex-wives, trip and fall people, business rivals, etc...) Offshore corps can be much more effective in thwarting these people than the IRS.

Dodging the IRS seems to be worth too much potential trouble and penalty for the gain. They are the single greatest risk to your freedom.

For fun, see if you can discover how OJ Simpson has been able to shield a lot of his assets from the Brown family. He is probably one of the best modern day examples of successful asset protection. Although, I do know that his NFL pension plays a large part in that. For the most part, pensions can't be attached in settlements.

[defguy]

I agree with everything Hydrogonian said. It is quite difficult to hide earnings from the U.S.. But he does illustrate a good point with his OJ example. With good lawyers (preferably foreign) you can hide anything. Just dont use an American Lawyer if your using a tax haven, they can be forced to incriminate you and "Attorney Client privilege" means nothing.

Now for my contribution. Disclaimer: This is my no means legal advice and you should consult a knowledgeable and qualified tax attorney. The way companies avoid taxes using tax havens is through subsidiaries. Just having your company in the tax haven does nothing itself, you must eliminate earnings which the government will notice if you have them.

How you do this (very vague example) is with 3 companies. 1) LLC Holding company owns your 2) internet website and a 3) "service" company located in a country or privacy haven where well maintained accounting records arent a requirement. Youll probably want all 3 companies in some sort of Tax Haven maybe 3 different ones to make it that much harder for officials to see the bigger picture. Your 2) website will use funds to pay "expenses" for whatever service your 3) company does; anything from selling $100 pens to Gazillion Dollar "consultation fees." Thereby on paper your website is operating at a loss or minimal gains meanwhile overall you "make money" via 1) Holding company.

Spreading money from one subsidiary to another is how major corporations avoid taxes, and Im talking the big names. Microsoft for example has over 200 subsidiaries in one particular Caribbean island (look it up if you dont believe me).

Now a couple of specific details:

What about the Holding Company?
To keep your Holding company out of the view of Uncle Sam your gonna have to have a Foreign read Local board of directors. This makes it look like they run the company not you. You dont want to have any ties to this holding company other than business partner buying their "product" or "service." Most tax havens allow you to have a board of directors that have no control over money whatsoever. People who utilize these havens usually hire a board of director $200-500 per annum using a service oftentimes provided by the lawyer who set up the corporation for you. This service basically has 3-5 lawyers who "sit on your board" usually with an undated letter of resignation (should you ever feel the need to use it) and these lawyers have no idea who you are and sit on the board for hundreds of other corporations.

How do I spend my money?
For obvious reasons your not gonna wanna have the holding company pay your car insurance. You may have your 1) website pay most of your personal expenses (you probably already do)
and/or
Prepaid debit/credit cards. They have these all over the world. You may have to pay a loading fee (should be under $100) for loading large amounts of cash onto each card but hey privacy aint cheap in this world. Just make sure the bank you use for transferring money from the holding company to your prepaid cards respects privacy laws.

Is all this expensive?
Upfront, yes. Each company will require set up fees (sorry I cant give a ballpark figure) and lawyer fees (yes your gonna want to use a few tax lawyers).

Maintaining after setup? Each of your companies will have to pay annual licensing fee or registration which in most Countries is $200-300 so approximately $900 there (you might need more than 3 companies though lol). Factor in your Board of Directors for another $500 and all the $70 prepaid debit card loading for the year and a good accountant to do your shoddy accounting. Plus your gonna wanna stay on top of any changes in the laws in each tax haven (yearly consultation with tax attorney?). But you can pretty much guess how much cheaper this will all be in the long run by eliminating taxes...

[K-man]

(07-20-2011 01:26 AM)defguy Wrote:  

Prepaid debit/credit cards. They have these all over the world. You may have to pay a loading fee (should be under $100) for loading large amounts of cash onto each card but hey privacy aint cheap in this world. Just make sure the bank you use for transferring money from the holding company to your prepaid cards respects privacy laws.

A prepaid card is deemed linked to a bank account in your name, and you have to disclose any foreign bank accounts you have control over (above a nominal threshold).
So you have to explain to the IRS why you keep money abroad and where it came from.

[defguy]

The bank account you use to load the debit cards is in the Holding Company's name. A company is a "seperate entity" and therefore can own property and bank accounts. The only names listed in ANY public database are the Board of Directors you pay for each year. Each of the 3 companies I mentioned has its own bank account and is "run" as a separate business. Look up the word subsidiary, i used it in my post several times.

Businesses can have credit/debit cards. But in this particular scenario your just gonna want a preloaded debit card NOT a credit card (Althought if your smart about using a CC it shouldnt matter). This debit card is similar to the prepaid debit cards you can get at Walmart (no names on these). The only difference is your loading LOTS of money on these like $20,000 or $100,000. Thats why it cost approximately $70 to have your bank load these up.

[babelfish669]

(07-20-2011 01:26 AM)defguy Wrote:  

I agree with everything Hydrogonian said. It is quite difficult to hide earnings from the U.S.. But he does illustrate a good point with his OJ example. With good lawyers (preferably foreign) you can hide anything. Just dont use an American Lawyer if your using a tax haven, they can be forced to incriminate you and "Attorney Client privilege" means nothing.

OJ didn't hide anything, he kept the assets either out of his name or in spots impervious to lawsuits -- none of which will make sense until you have at least $1 million in the bank.

The problem here guys is not fines from the IRS, owing backtaxes, or going to prison for tax evasion. What is going to get you fucked in the ass is money laundering and wire fraud -- a tool that is often necessary for US citizens to avoid paying taxes.

Stay away from second rate lawyers selling you tax services. They make their money on the front end, and when their structure collapses you pay the fines and do the time.

Put your effort in to making money, if your business is anywhere close to scalable the tradeoff in taxes will be inconsequential.

If your not a United States citizen, have at it. Get the hell out of your overtaxed country and stop by for the holidays.

[oldnemesis]

(07-20-2011 01:26 AM)defguy Wrote:  

How you do this (very vague example) is with 3 companies. 1) LLC Holding company owns your 2) internet website and a 3) "service" company located in a country or privacy haven where well maintained accounting records arent a requirement.

To make it clear, you're not talking about legally reducing your tax liabilities, correct? It is more like hiding your income from IRS. In this case if your income is high enough, this scheme won't help anyway, and if it is low enough, it makes little sense.

[oldnemesis]

(07-20-2011 12:18 PM)defguy Wrote:  

The bank account you use to load the debit cards is in the Holding Company's name. A company is a "seperate entity" and therefore can own property and bank accounts.

Yes, but since you use the card linked to this account, this means you have "a financial interest in or signature authority over a foreign financial account", and the IRS requires you to file the FBAR form. If you file this form, all your secrecy is ruined because you just tell IRS about your bank accounts. If you don't, it is not legal tax haven anymore, it is just tax evasion, and if you're willing to go illegal, there are simpler ways than that. But, same as above, if you're making millions, you'll eventually get caught - in which case you have a good chance to serve some jail time. And if you're making 30K a year, tax evasion should be the last of your problems.

Quote:

Businesses can have credit/debit cards. But in this particular scenario your just gonna want a preloaded debit card NOT a credit card (Althought if your smart about using a CC it shouldnt matter). This debit card is similar to the prepaid debit cards you can get at Walmart (no names on these). The only difference is your loading LOTS of money on these like $20,000 or $100,000. Thats why it cost approximately $70 to have your bank load these up.

But what next? You won't be able to withdraw money in a bank since they'd check your ID and the card has no name on it. You won't even be able to purchase anything expensive as the sellers tend to check the ID as well. So what you gonna use this card for, to withdraw the $400 allowance in the ATM every day? I just don't get it.

[Zen]

I'd suggest taking a look into Hong Kong.

[Pepini]

http://www.linkedin.com/profile/view?id=...trk=wvmx_p

(Btw that´s not my linkedin)

[Paragon]

If you live plan to live outside of the US for more than 330 days and earn less than $92,200, check out 2555 form. http://en.wikipedia.org/wiki/IRS_tax_forms#2555

[oldnemesis]

Note the word "earn" there. Interest/dividends are not excluded.

[defguy]

You might want to check this out. A short discussion on how the IRS is using Credit Card tracking to track down its thousands of citizens with undeclared income overseas.

[Pepini]

This scheme reminds of a tecnhique some stores such as restaurants and bars do.
They have two Atms. One legit which is connected to the real bank account of the store. Every transaction can be traced by the IRS, and so cannot be hidden. And another "false" ATM which is connected to the owners cousin bank account. Every transaction made by this ATM cannot be traced by IRS. Some stores have this ATM in the back, and search it if your making a purchase and there´s nobody in the store.

Pretty much the same with offshore, in a different level.

[defguy]

There are estimated at LEAST a hundred thousand Americans who have offshore bank accounts that are not declared totaling another Estimate of 50 Billion Dollars in evaded taxes. But so few arrests are made compared to such a large number. Either a creditor is personally after your assets and roots out the hidden assets during a lawsuit or your dumb enough to pay your home mortgage with your overseas bank account and get caught.

There are millions of credit transactions by Americans and Foreigners in the US every day and the IRS simply cannot keep track of them all nor can they require retailers to report foreign credit transactions. The IRS can request that all transactions via foreign backed credit cards made in the US be available to them and they can wade through them all looking for clues to who they belong to but if you don't purchase anything personal that gives your identity away (ie car payment, mortgage) then your good.

[chyamor]

Anyone have experience in this? I'm looking to open a overseas bank (legally) Ive read I can walk into any bank here in the U.S that also has banks overseas and open an account. Anyone have any bank names?