Offshore Planning

Offshore Financial Planning

Offshore Financial Planning is a tricky business and is not the right choice for most people. But for some people “going offshore” can be a legal, ethical and reasonable way of protecting their assets, reducing their taxes, and of obtaining greater financial privacy. Sometimes it is simply necessary to more efficiently handle international business transactions. Whatever the motivation, I strongly encourage clients to carefully review and consider all their options before moving forward on this option.

Just setting up a foreign company and then doing business inside your old jurisdiction will not work. You need to be in a situation where some or all of your business can be successfully transplanted to that new more friendly jurisdiction. Examples of “offshore” friendly businesses are: importing/exporting, software design (particularly if you are already using offshore technicians or have significant offshore clients), Internet services, financial services, entertainment industry, and other types of intellectual property. If you do not have a business that lends itself to “going offshore” then it would be wise to focus on more cost effective domestic alternatives.

However, if you are in a situation where “going offshore” might be a good idea, there are a lot of really interesting options available.

The United Kingdom Limited Partnership

The United Kingdom Limited Partnership is the ultimate pass through tax entity. As long as you are not a UK resident, and the business does not take place in the UK there are no taxes on the LP income. Even better, there is no need to even file anything with the UK authorities after the LP has been registered.

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The Privacy Passport®

The Privacy Passport® might be the ideal asset protection and tax planning system for those who want to go “offshore”. It takes advantage of both “offshore” asst protection and tax benefits and “onshore” banking access. In this way you can go offshore without worrying about FATCA and FBAR. Also, the Privacy Passport® benefits from a combination of “trust” law and “corporate” law making it an ideal solution.

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The Republic of Georgia Limited Liability Company

Coming Soon!

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How a US LLC can Uniquely Benefit a UK Resident

A prospective client approached me recently regarding the benefits of establishing a US Limited Liability Company (US LLC), becoming a non-resident of the UK, and in which order should he proceed. Due to the unique status of how the UK interprets US LLC status, residents of the UK can receive some very unique benefits if they neither incur US or UK “effectively connected income”. This was my answer:

Well I first must fully agree with you about non-res status. It can be a real deal changer. However, in your case it is not absolutely necessary, and I would feel free to proceed with a company formation prior to actually leaving the UK.

If you own a US LLC it will be treated very oddly because of the way that the US and the UK deal with how US LLCs are treated for tax purposes.

In the USA the default setting of the US LLC is “disregarded entity” which means it does not exist for US tax purposes. So if you do not live in the USA and you do not earn “effectively connect US source income” then you will owe no US taxes. In fact you will not even have to file tax returns. This will be the case even if you have a US bank account and do all your banking in the USA. Just receiving money in the USA, even if that money comes from US sources, does not create a tax liability. For that you need to do more; make things, store things, deliver things, maintain permanent offices and staff, etc. from inside the USA.

Now that all sounds pretty good! However, it only gets better for citizens of the UK. Even though the US considers the US LLC to be a “disregarded entity” the UK treats the US LLC as a separate entity. If the US LLC does no business in the UK and incurs no income in the UK then there will be no UK taxes due from the income earned by the US LLC. Now you will need to pay taxes on income you receive as a salary or profit distribution, but you will be able to provide yourself with many tax free benefits since the US LLC will have no taxes to pay anywhere. Money you do not distribute to yourself, or use for your personal benefit will be deferred taxation allowing you to further invest that money. Now it is wise to be careful about how you give yourself these “tax free benefits” since the UK may decide that what you are really doing is giving yourself income and then fraudulently evading taxes; not good. So don’t be greedy. If you are receiving real economic benefits while living in the UK then pay taxes on that income. Keep in mind that you get to choose how you get paid and can select the method with the least tax; profit distributions, salary, reimbursement for contract work, etc. You get to choose whatever is best for you, but again don’t be greedy.

This takes us to the interesting issue of how to really avoid UK taxes. Move out of the UK. I am not a UK attorney, and I do not even pretend to play one on TV, but it is my understanding that in order to gain full non-resident status you must do more than just leave the UK and stay out a certain number of days. You must also obtain a legal residency in some other country. In this regard there are a lot of interesting options out there.

I chose the Republic of Georgia for a number of reasons. For me it was mostly lifestyle issues and economic opportunities, but there are also a lot of tax benefits to be had here. Getting a residency is simple and easy, and it can lead to citizenship for some in under a year! I don’t know of any place else on earth where that is possible without some sort of ancestral claim or a huge investment in the country; at least not a country that I would actually want to be part of.

Some other interesting options that provide great tax benefits: Montenegro, Mexico, Malta, Latvia, etc. Each has its advantages and its disadvantages. Note, you do not necessarily have to live in the country that you have a residency. It might just be a legal formality so that you can claim non-res status. On the other hand it might be nice to combine the issue of tax status and where you like to live.

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