Posted: 5/28/2009 8:39:08 PM EDT
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Move Your Money Offshore
Things are getting uncomfortable for individuals and corporations looking to deposit their money in tax havens around the world. Just recently, Congress introduced the so-called “Stop Tax Haven Abuse Act,” which is designed to do away with the privacy afforded by doing business or investing outside the U.S. and to eliminate or reduce tax benefits available offshore. Simon Black and Fitzroy McLean, ex-CIA operatives, investment pros, and globe-trotting editors of Casey Research’s Without Borders, weigh in with their no-holds-barred opinion on the topic… We are patriots. We have proudly served in our country’s military, have extended a helping hand to its public sector, and have plowed our entrepreneurial enterprise into its once fertile soil. We love America, but these days, America does not love us back. It takes without giving and squelches free enterprise. These days, America is no longer the land of the free, especially when it comes to the market. Just look at the headlines, seemingly ripped from the pages of Atlas Shrugged: Unconscionably large bank bailouts. Punishing regulations and tax requirements. An arctic business climate. Government money bombs. Riots and protests. Slowing trade. Protectionist rhetoric. Demonized corporate executives. Even pirates hijacking cargo ships. One can guess what will happen next. We predict the next several years will usher in larger, more obtrusive governments, resulting in a decline of personal liberty and financial privacy. The world will become increasingly polarized between two groups: those who consider government intervention a great idea, and the rest of us who happen to be sane. As such, you can bet your last falling dollar on some absolute certainties: bank nationalization is a given, at least de facto if not de jure; taxes are going up on those of us with any money left; the Fed’s money blitzkriegs will spark a blaze of inflation; and financial privacy will be a thing of the past in the United States. The obvious and necessary solution is to position one’s finances outside of the United States, and to do so now, while the narrow and finite window of opportunity is still open. To be clear, evading (or even avoiding) taxes at this point is not a wise move, given the size and scope of the ever-growing IRS. But there are significant advantages to expatriating your capital now: For starters, you will actually have control of your own money. Yes, in certain instances you’ll be obliged to tell the IRS exactly where it is and what you’re doing with it, but no government agency will have the authority to reach into your overseas pocket and freeze or expropriate (read: steal) on a whim just so Team Obama can give it away to pay for someone else’s McMansion. Plus, when exchange controls are implemented and Americans are forbidden from wiring money overseas, your capital will already be secured in another jurisdiction, where you will be free to do what you want with it. Secondly, you will no longer have to assume the risk of insolvent banks or go through the hassle of petitioning the government to get your FDIC insurance bailout. Many overseas banks are far better capitalized than those in the United States, and some of them are in jurisdictions with constitutionally protected banking privacy. Lastly, and probably most importantly, moving money overseas gives you a last chance at diversifying out of the dollar, which, in a very short period of time, will barely be worth the paper on which it’s printed. Bank and Brokerage Accounts Opening a foreign bank or brokerage account is easier said than done; the United States government severely restricts where and under what terms you can open a bank account, invest in a fund, or engage in other economic activities that facilitate the protection of and access to your assets. As the signatory on an overseas account, you are required by law to inform the federal government on Treasury form TDF 90.22 by the end of June each year. Ostensibly, this has been done in the name of fighting money laundering, but it has the effect of severely restricting your freedom of financial movement. Many foreign banks simply won’t work with you… don’t worry, it’s nothing personal. Uncle Sam has been beating them down since the Reagan years, and between Qualified Intermediary rules, tax treaties, and the USA PATRIOT Act, Sammy gives himself a lot of regulation to bury the opposition with. There are some jurisdictions that are still excellent banking centers; Switzerland may have rolled over, but Panama, Uruguay, Singapore, and the United Arab Emirates have thus far ignored the call for “greater transparency” (read: government access to private finance). Some individual banks, like Credicorp and Global Bank in Panama, or Banco Itau in Uruguay will not work with U.S. citizens anymore, but there is still opportunity with the hundreds of remaining banks in these jurisdictions. Similarly, opening a foreign brokerage account is a shrewd move, not only to move your money overseas but also to have greater access to financial markets. Remember when world markets tanked on Martin Luther King Day 2008? If you were a U.S.-based investor and wanted to sell, sell, sell, you had to wait a full 24 hours until the markets opened after the holiday on Tuesday morning. If you had been invested with global depository shares through a foreign brokerage, you could have saved yourself several points and gotten out in time. We would suggest looking at Saxo Bank in Denmark. Bullion Storage If you have gold, it would be highly beneficial to get it out of the U.S. – stat. If you do keep it in the U.S., your only truly reliable and private option is to store it yourself in a safe that you bury in your backyard. Otherwise, move it out of the U.S. now before Team Obama pulls an FDR and takes your gold from you. At the moment, gold is not considered a monetary instrument by the U.S. Customs and Border Patrol, so there is no legal requirement to declare your bullion upon leaving the United States. Some countries, like Taiwan and Uruguay, require you to declare gold in excess of a certain value to customs officials upon entry. We recommend Panama, Austria, Switzerland, and the United Arab Emirates as locations to store bullion; one particular favorite is a location called Das Safe ( www.dassafe.com) in Vienna where anonymous safes start at 400 euro/year. Real Estate It might sound counterintuitive after the subprime debacle, but real estate is a sound option for moving money outside of the United States; there are zero reporting requirements. It’s your business where you own property, and (so far) no one else’s. You can purchase property in a private way by setting up a corporate structure to hold the assets so that they’re not in your name (Panama is an excellent jurisdiction to set this up), and although there are many places with depressed real estate markets, there are also many with good growth potential: in Latin America, we would recommend Panama, Colombia, Uruguay, and Chile. In Europe: Slovakia, Albania, and Poland. In the rest of the world: Lebanon, Hainan Island (China), the Philippines, Cambodia, and New Zealand. Time is of the essence – start looking for your safe haven now. About The Author Without Borders is Casey Research’s monthlynewsletter dedicated to finding the best global investment opportunities and the most beautiful places to live and do business. |
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How to Go Offshore yet Stay on the IRS's "Good Side" Minimize
by Mark Nestmann You probably wouldn’t ask the IRS out on a date or join the IRS for happy hour at the bar. Nonetheless, if you’re a U.S. citizen or you live in the United States you have a relationship with the IRS, whether you like it or not. And if you invest or do business offshore, the IRS needs to know about it. In any relationship, it pays to put your best foot forward from the outset. And that’s particularly true of the IRS, because the IRS can impose severe penalties for not following the reporting rules for investing or doing business offshore. If you have signatory or “other” interests in foreign bank, securities or “other” financial accounts, with an aggregate value of US$10,000 or more, you must report those interests. Given that the deposit minimums for many offshore banks now exceed US$100,000, it’s not hard to meet the US$10,000 threshold. What’s Reportable? There are two separate annual reporting requirements. You must: • Acknowledge that you have signatory or “other” authority over one or more foreign accounts each year on Schedule B of your federal income tax return. • File Form TD F 90-22.1 (the “foreign bank account reporting” or “FBAR” form) with the Treasury Department. (This is a simple form and it only takes a few minutes to complete.) If you don’t comply with these requirements, you could face severe penalties. You could be fined a civil penalty up to US$10,000 for negligent noncompliance and criminal penalties up to five years. You could even get both, for “willful” noncompliance. You should also report various “bank-like” offshore financial relationships. For instance, several non-U.S.-based “digital gold” services permit users to make financial transactions over the Internet in gold-backed accounts. While these services clearly aren’t banks, they carry out “bank-like” functions. For that reason, the safest course is to report such accounts. I also recommend reporting foreign variable annuities or life insurance contracts as a foreign account. According to U.S. Treasury Department analyst Elizabeth B. Witzgall: “The position of the Department of the Treasury is that premium payments for insurance policies with cash surrender value or other investment features constitute ‘deposits’ within the meaning of Form 90-22.1. Therefore, if a life insurance policy is a ‘whole life’ or other type of policy with investment value, then it is an ‘other financial account’ subject to reporting.” Some offshore promoters claim that you don’t need to report the existence of an offshore account if it’s not in your name and/or you don’t have signature authority over it. Let me set the record straight. If you hold a debit card for your offshore account, and you can use the card to withdraw money, or even have absent signatory authority over the account, then you clearly have “other authority” over it. And that means you must report it. . “IF YOU’RE A U. S. CITIZEN YOU HAVE A RELATIONSHIP WITH THE IRS, WHETHER YOU LIKE IT OR NOT.” Four Non-Reportable Offshore Investments The reporting rules suggest several possible exceptions: * Securities purchased directly from an offshore bank. A securities account is a reportable account. But if you purchase securities from an offshore bank, without opening an account, and keep the certificates in your safety deposit box, the reporting requirements don’t appear to be triggered. * Real estate. Direct ownership of real property (including timeshare arrangements) in a foreign country isn’t a foreign account. But you must report income from your real estate holdings, wherever they’re located. * Safekeeping arrangements. Valuables purchased outside the United States and placed directly into a non-U.S. private vault don’t appear to trigger the reporting requirements. * Warehouse receipts and similar instruments. Certificates that represent ownership of a specified quantity of precious metals or other commodity, stored outside the United States, may not be reportable. A certificate should provide for “allocated” or “non-fungible” storage qualify. This means you own specific barrels, bars, coins, etc. that aren’t available to meet other claims of the warehouse company. Commodities held in non-allocated, pooled, or fungible form may be reportable. * Foreign safety deposit box. Neither a safety deposit box in a foreign bank, nor the contents in it, constitutes a foreign bank account. However, if you open an account with the bank to secure the box, it counts toward the US$10,000 reporting threshold. A Date to Remember The deadline for filing Form TD F 90-22.1 is June 20, to report foreign accounts for the previous year. Don’t miss this deadline. Otherwise, you might have a date — and an unwelcome one — with the IRS. WARNING: If you have unreported foreign bank accounts, seek immediate legal counsel from a criminal tax attorney. It’s possible that you can work out an arrangement with the IRS to file the appropriate tax returns, pay the taxes, penalties and interest, and avoid criminal prosecution. What Else Do You Need to Tell the IRS About Your Offshore Dealings? Offshore bank accounts are just the beginning. If you’ve formed any kind of offshore business entity or offshore trust, invested in an offshore mutual fund, or purchased an offshore insurance policy, a variety of reporting obligations apply. Here’s a summary, which I’ll elaborate on in an upcoming article: * Form 720 for premiums paid to foreign insurance companies, unless payment of excise tax is waived under a tax treaty. In that event, you must file Form 8833 * Form 926 for transfers of property to a “controlled foreign corporation” * Form 1041 to report the income and expenses of an offshore grantor trust. If the trust earns U.S. source income, you must file Form 1040NR annually * Form 5471 annually for a controlled foreign corporation * Form 8621 to report income from or dispositions of a foreign mutual fund * Form 8832 to elect to have a foreign entity disregarded for U.S. tax purposes * Form 8858 annually for a disregarded entity * Form 8865 annually for a controlled foreign partnership |
