Global Finance magazine’s listing of the ten safest banks in the world reveals the dominance of European banks. Not a single US Bank makes the grade. The fear that another financial crisis affecting the banking system would have a ripple effect on businesses is not unfounded. The government, deeply indebted, has no money for another bailout.
Many American businesses have become conscious of the safety of their assets and privacy of their bank accounts, and offshore businesses and banks offer a safer refuge. Businesses are also anxious to protect their assets from third-party lawsuits, rapacious creditors, and adverse court judgments. For extreme privacy protection businesses could profitably utilize the international consultancy expertise in anonymous banking by CS&P.
The offshore company offers a stepping stone to foreign tax havens, delivering an irresistible combination of regulatory relaxations and tax concessions. It’s a sound strategy and it’s entirely legal despite the bad publicity generated by crime lords, money launderers, and fraudsters.
No, we’re not talking about shady shell companies or mysterious nominee directors, and we’re not faking the IRS. Your business is moving offshore to a real office with genuine employees guided by a strategic asset management plan.
We present a guide that’ll take your business offshore in an efficient step by step manner that is tax compliant and doesn’t raise the hackles of the authorities.
Why should you move offshore? What’s wrong with keeping your business rooted within our borders? Because you’re concerned about protecting your bottom-line with lower overheads and reduced taxation, that’s why.
First, off the block, your wage bill will climb down substantially because most countries pay lower wages than the US. Again, that depends on where you relocate. If it’s one of those newly emerging economies, wages won’t burden you.
Something more challenging than wages would be English speaking workers. If you overcome that hurdle, you face the next challenge – tapping the skill profile that higher efficiencies require. The immensely talented skill pool will need training inputs and layered incentives to bring out the best in them.
If it’s taxation that concerns you, there’ll be two plans to contend with:
- If you’re away from the mainland, tied to foreign locales for a minimum of 330 days annually, an offshore business income up to $104,100 (for 2018) is tax-free back home. If the spouse joins you in business, the exclusion ceiling moves up to $200,000. This is the Foreign Earned Income Exclusion (FEIE) plan, and if you want a better handle on it, discuss it with your asset protection strategist.
- The second tax option concerns big businesses that notch up profits exceeding $1 million annually. These are mostly businesses that have their headquarters based in the US but operate out of offices in one or more countries abroad. Such companies follow the transfer pricing model for distributing earnings between their home office and foreign subsidiaries. The home venture will be taxed proportionately to the value it creates. The foreign offices retain earnings proportionate to the value they create.
Suppose you’re developing a software that costs you $10 to create, and sells for $110, giving you a profit of $100. Since 60 percent of the work can be shown to be the value addition of your foreign office, you can retain $60 aboard as tax excluded funds. You pay domestic taxes only for the $40 you retain for home operations.
Observe the advantage; a dynamically growing asset is safely located abroad, and its earnings are shielded from domestic taxation and allowed to grow undisturbed. If there’s chaos back home, the foreign operations will fly your flag without your breaking into a sweat.
Once you have a grip on your bottom-line (overheads) and taxation policy, you can move on to the next big adventure – selecting the country where you’ll set up your office. Ideally, you want a country that doesn’t tax the profits that you’re bringing to that country to set up a business.
Fortunately, there are tax-free jurisdictions that allow you the freedom to just about do what you like with your money. If you’re a solo operator working on the FEIE model, and overheads aren’t an issue, you can opt for tax havens and live a tension free life. Being a bigger company means you’ll be tied to transfer pricing, hence cheap labor and a talented skill pool will be your top priority.
Overheads and taxation apart, there’s a third factor that determines your choice of an offshore base – the quality of life index. For example, Panama has all the positives we’ve discussed, and there’s no tax on foreign source income. But you may find the climate exceedingly humid and tiring. City life and amenities and the degree of professionalism that you expect in business dealings may suffer when compared to what you’re used to back home.
The Cayman Islands is an uber luxurious paradise for the FEIE solo operator. For a multinational company running 50 or more employees, it could work out to be frightfully expensive. Everything from labor to housing and utilities is expensive. Its offshore banking facilities are world class.
If you’re after banking privacy, the Cook Islands leads with airtight banking confidentiality clauses.
The Isle of Man (in the Irish Sea) excludes corporation tax, and taxation on capital gains, inheritance and wealth.
An international consultant will be better placed to sift the pros and cons of each jurisdiction to find a place that suits your goals to the tee.
If you’re considering an offshore trust, an LLC or an IRA LLC, the balance of opinion weighs heavily against these options in favor of the offshore corporation. There’s one monumental reason why. You get to keep your earnings offshore. This aligns beautifully with one of our original goals – tax planning. Besides, you can use the corporation tag to charge all your payroll expenses, property rent, and miscellaneous local expenses.
Again, it depends. If you’re an FEIE solo player earning within $100,000 annually through offshore business, an LLC could be a better and inexpensive option.
An IRA LLC is a different version of the LLC that permits you to move your retirement fund abroad, giving you complete control over the fund. This is a good asset protection move.
If the offshore jurisdiction is taxing the profits you’re bringing in, you build the second corporation in a tax haven. By doing that you create an additional resource that can be used to bill clients and minimize taxation in the jurisdiction where the first corporation operates.
If you see the potential for developing intellectual property outside the US, it’s better to move it offshore. The way to do it is to value the IP and to sell it to the offshore holding after paying taxes on the sale proceeds. This way, you avoid taxes on the transfer of title and save all future taxes on the IP’s growth.
An offshore banking account could well be the jewel in your crown. There are banks that operate asset management advisories that protect you from lawsuits. It gives you a conduit for cross-border high-value transactions that can be wired safely. There are portfolio management services that offer specialized investment information.
The safest gambit is to open accounts in your offshore jurisdiction for local expenses, one in the second corporation for client billing purposes, and the one back home for repatriating profits. Moving the business to an e-commerce platform will help you avoid the downtime and redundancies associated with local services.
Being a US citizen implies that you follow the Citizen-Based Taxation CBT) model which means that your entire income worldwide has to be declared in your annual tax return. It’s immaterial whether you reside in the US or abroad or whether your income is local or global – you report it or face non-disclosure penalties. Tax compliance measures have to be taken seriously, and it’s safer if you engage an international consultant to do the paperwork efficiently.
There’s an old adage that goes, “never keep all your eggs in one basket.” Looking at the stress and strains pulling the US financial sector apart, it would be sensible of a businessman not to park all assets in the US. That bit of sane advice covers the biggest US Banks as well as stockbrokers (that are intricately connected to the banks). One of the sheltered options is to diversify investments through legal offshore accounts and grow a strong portion of one’s business base abroad in a jurisdiction that is tax-friendly, investment-friendly, and profit protective.
Originally posted 2018-10-14 17:05:54.