Premier’s team has over 100 years of combined experience in offshore, financial, tax, legal and business backgrounds. We have been successfully helping our customers with private financial solutions and safeguarding their wealth for over a decade.
Offshore Tax Benefits
There are three primary categories of offshore tax benefits available to Americans:
Personal and business offshore tax breaks for entrepreneurs and employees living and working abroad.
Maximizing the tax benefits of your retirement account by moving it offshore.
Tax planning available to offshore businesses setting up branches or divisions in low tax countries.
We focus on Americans living, working and investing abroad. This site and my writings are intended for small to medium sized businesses, expats, and for those looking to diversify their holdings out of the United States.
Premier has served thousands of business people, attorneys, accountants, physicians and expats. They are frequently contacted by law firms around the world to design and implement advanced asset protection and business structures for their clients. They were one of the first, and still the leader, in helping American’s take their IRAs, 401ks, and defined benefit plans offshore.
Offshore Company, Offshore Corporation and Offshore LLC Formations
I speak with potential clients every day who have read and researched offshore companies on the web, or spoken with non-US advisers or online incorporation mills, and they are often filled with inaccurate and potentially dangerous information on the legitimate uses of offshore companies. This is especially prevalent in those who seek cheap advice from international advisers who are not experts in the US tax laws affecting their offshore company.
In the article below, and in my email newsletter, I do my best to dispel these myths and explain the proper uses of offshore companies in a simple and straightforward manner.
A professionally structured and tax compliant offshore corporation can reduce or eliminate U.S. tax on an expat’s ordinary business income, while a non-complaint offshore company is the quickest way to land in hot water with the IRS.
I have been assisting U.S. individuals and businesses move or invest offshore for 15 years and I have been writing on this topic continually for most of this time. The culmination of my experience is contained in my 60 page Expat Tax and Business Guide, 2013 edition, available on this website as a free download.
While reading this article, please keep the following definitions in mind.
- Offshore company or offshore companies are generic terms for an incorporated offshore structure.
- An offshore corporation or offshore IBC is an offshore company organized and taxed as a corporation.
- An offshore LLC is an offshore company organized as a flow-through entity for tax purposes.
- A disregarded entity is a single member offshore LLC that is ignored for tax purposes. These offshore companies are generally used for asset protection or to hold IRAs
- An offshore LLC with more than one member is incorporated and taxed as a partnership. These are offshore companies taxed as partnerships rather than corporations
Reasons to Form an Offshore Company
Operating through an offshore company allows you to conduct your business, bank transactions and/or personal financial affairs with maximum tax efficiently and a level of privacy and anonymity. Placing assets into an offshore company and incorporated legal structure provides a strong layer of protection from future liabilities.
Holding bank accounts and assets in an offshore company, rather than in your name, maximizes privacy and protection. In many jurisdictions, the company officers, shareholders and beneficial owners are not public record and their privacy is guaranteed by statute.
There are four primary uses for an offshore corporation or offshore LLC.
- If you are an American living outside of the United States and operating a business, an offshore corporation can provide significant tax savings and deferral opportunities. These benefits require that you qualify for the Foreign Earned Income Exclusion discussed in the taxation section of this site. Tax benefits from retained earnings do not apply to an offshore LLC.
- An offshore Self Directed IRA LLC can facilitate investments in to international markets and gives you control over your retirement assets. Likewise, an offshore corporation added to this structure may have significant tax benefits for the sophisticated investor. Please review the Self Directed IRA section of this website for additional information.
- Placing your after tax assets in to an offshore LLC provides one level of international asset protection and, when combined with a foreign trust or foundation, maximum privacy and security can be realized. Advanced asset protection structures are discussed in the International Trust section of this website and a wide range of techniques are covered in my newsletter.
- An offshore LLC can open bank accounts around the world to facilitate currency and investment diversification. See Offshore Banking for additional information.
The articles on this website and my offshore company formation methodologies are focused on tax compliant company formations for American citizens or residents. Please contact us at firstname.lastname@example.org or by phone at (619) 550-2743 with any questions.
Offshore Corporation or Offshore LLC
An offshore corporation, also referred to as an International Business Company or Offshore IBC, is an entity separate and distinct from its shareholder(s) while an offshore Limited Liability Company is tied to its members as a pass-through entity for U.S. tax purposes. Both structures provide the same level of asset protection but are treated differently by the tax code.
An offshore LLC with only one member is treated as a disregarded entity. This investment and asset protection structure has simplified U.S. reporting requirements and selecting the offshore LLC entity classification with the IRS will reduce your annual maintenance costs. A single member offshore LLC is best suited for the following:
- To manage your IRA. The Self Directed IRA LLC allows IRA income to flow-through to the retirement account, thereby maintaining the exempt or deferred status of the plan.
- To hold an offshore bank account for a U.S. resident seeking asset protection. A person living in the U.S., who does not qualify for the Foreign Earned Income Exclusion, receives no tax benefit from being offshore. Therefore, the simplified reporting of an offshore LLC is preferred.
- To hold an international business that is expected to generate net profits that are less than the Foreign Earned Income Exclusion amount and/or does not want to retain profits in the offshore company. Even if you qualify for the FEIE, the simplified tax reporting of a single member offshore LLC is preferable to the complex tax scheme of offshore companies if net profits are unlikely to exceed $97,600 for one owner or $195,200 for a husband and wife in 2013.
A multi-member offshore LLC is also a flow-through entity for U.S. tax purposes. However, it is reported as a partnership and requires a complex tax return. Offshore LLC partnerships are primarily used in joint venture arrangements.
An Offshore IBC or offshore corporation is best suited to hold an active business that will generate net profits in excess of the Foreign Earned Income Exclusion amount and for complex offshore IRA structures. If you, as the owner of a business, are living and working abroad, you may be able to defer U.S. income tax on net operating profits by retaining income in an offshore IBC. How to achieve this level of tax efficiency is covered in detail in my Expat Tax and Business Guide.
Diversified Offshore Companies Structure: Five Flags Approach
The key to a tax efficient offshore companies structure is diversification of entity, operations and banking. Likewise, the key to maximum asset protection is diversification of jurisdiction, offshore structure portability, and of your portfolio. A well designed offshore company structure will allow you to achieve personal freedom, privacy, and protection. If you are living and working abroad, this same approach may allow you to live tax tax-free, thereby increasing the quality of your life and reduce your cost of living.
A complete approach to offshore planning takes in to account five primary factors, and is typically referred to as the “Five Flags” approach. The five flags you must plant to achieve freedom, privacy and protection are:
- Residency. Living and/or working in one country (where you pay little or no tax).
- Offshore banking. Doing your banking in another country (where you can feel secure your deposits are safe).
- Foreign Investments. Making investments in a third market (such as real estate, maintaining a brokerage account, storing gold, etc.).
- Passport. Holding a passport in another jurisdiction, such as your country of origin or a “second” passport. For information on passport programs, see the Second Passport section on this site.
- Offshore Company. Incorporating your business or protecting your assets in a country separate from any of the ones above. A diversified structure with multiple offshore companies is one of the best asset protection and tax planning solutions.
In most cases, the first flag to be planted is a bank account held by your offshore company. This opens up a number of investment and diversification options and will get you started on a complete Five Flags approach.