Offshore Strategies & Services

Offshore strategies may or may not be right for you. Moreover, there is a right way and a wrong way (legal and illegal) to execute offshore strategies. If you choose the wrong way you may wind up worse off than if you had done nothing at all.

You need a principled, experienced offshore consulting firm to give you the right answers. There are hundreds of offshore service providers on the Internet. But who are they and, just as importantly, where are they? If you have never used offshore resources to protect your financial future because you just couldn't be sure with whom you would be dealing, you were correct to be concerned.

Many of these Internet promoters seem to exist only in cyberspace. They prey on fools with unrealistic goals. Use your common sense and choose a consultant just as you would a lawyer, doctor or accountant. Research who they are and where they are - physically, not just a domain name or email address. Get references and check for licenses or registrations.

Offshore Goals

What are your goals? If your goals are unrealistic you are a perfect candidate to get burned by unscrupulous promoters as they will be the only ones willing to promise you the moon.

If you are going offshore to evade taxes - forget it; this is 2005 not 1975. All of the obvious loopholes have been closed and there is no such thing as secrecy anymore. Just about any country where you would feel at all comfortable parking capital has some sort of treaty with the US allowing the IRS to penetrate the veil of secrecy if there is reason to belief you are evading taxes.

Some unscrupulous promoters will claim that their plans are set up in jurisdictions where there are no income taxes, no capital gains taxes and no death taxes. While this may be true - for that jurisdiction - the U.S. tax consequences are entirely different.

With the exception of a non-CFC (non-controlled foreign companies), there is no simple way to avoid or defer taxes offshore that cannot be done onshore. There are no "offshore only" ways for the average investor, holding marketable securities and acting alone, to avoid income taxes on investment income.

The most predatory offshore service providers will simply lie and tell you that for whatever reason, there are no U.S. taxes due on their preferred type of offshore vehicle ("you don't own the company - you're just the manager;" "you don't owe taxes on offshore trust income;" "the Panamanian foundation is a separate legal entity without any owners, so you don't pay taxes on its income," etc.).

Bad tax advice can have grave consequences. Willful tax evasion and willful failure to file required information returns are, of course, serious crimes that can and do result in massive fines and imprisonment. Even worse it can result in the imposition of heavy fines and interest, and at worst, fines and imprisonment.

Under certain circumstances you may be able to defer taxes until you repatriate the offshore profits (although the IRS interest clock will be ticking on the amount of taxes you have been able to defer) but you will not be able to legally eliminate or defer taxes without:

1. Assuming some kind of real investment risk

2. Surrendering exclusive control over the offshore assets

3. Place assets in a trust, in which case the same trust taxation rules as domestic trusts will usually apply.

Legitimate strategies are available to defer (notice I didn't say "shelter") taxes but they are complicated and situation specific, requiring expert legal advice. There are no simple solutions.

Asset Protection is a legitimate goal and can be done effectively if done well before any lawsuit or other legal action. However, it is fair to say that while protection against civil actions is possible, there is no protection against the US Government. There is nothing like God on earth as a Federal judge. In recent years, Federal judges have jailed defendants for contempt of court for refusing to repatriate assets held in an offshore trust - even when they had no legal way to do it!

The most commonly employed asset protection techniques include: 1) offshore trusts; 2) captive insurance companies; 3) private placement insurance products, and; sub-part F exemptions.

All of theses require expert planning and ongoing compliance monitoring. If you have significant wealth they will be worth the effort.

Wayne C Walker, principal, Windward Harbor LLC http://www.windwardharbor.com