Do you know there are “foreign”  firms domiciled in tax havens like the Cayman Islands, the British Virgin Islands, the Bahamas and Bermuda with over 1,000 employees?

The entire population of the Caymans is approximately 41,000 and includes  22,000 foreigners.

Do you know that in the Cayman Island banks alone there is more than $1.2 trillion dollars on deposit?

The Cayman government claims that 60%of these monies is from Americans!

There are more than 32,000 exempted companies in the Caymans, another 480,000 International Business Companies in the BVI, and approximately 140,000 IBCs in the Bahamas alone.

Do you know why there is so much money in Cayman and these other tax havens, and why so many companies are incorporated on these islands?

The 100 year old investment-banking firm of Warburg, Dillon Read (on Park Ave. N.Y.) (now UBS Warburg) has offices in 39 foreign countries – including the Bahamas, the tiny Cayman Islands, Hong Kong and the Channel Islands. Makes you wonder why, doesn’t it?

Non-resident foreign companies, trusts, banks and individuals can trade stocks, bonds, commodity contracts and options 100% free from U.S. capital gains taxes.

Under the U.S. Tax Code, only when a foreign company, foreign trust or nonresident alien individual takes up permanent residence within the United States will he be subject to U.S. capital gains taxes in the same way as domestic taxpayers. For a corporation permanent residence would be a U.S. office or warehouse. Capital gains realized by foreign corporations and other nonresidents “not engaged in a trade or business within the United States” are exempted from tax under IRC Section 871 and IRC Section 881 & IRC Section 897(c)(3). Moreover, U.S. Treasury Regulations Section 864-2(C)(1) & (2) provides an exception for what embodies being “engaged in a trade or business within the United States”. Under U.S. regulations, a nonresident’s Stock Market transactions carried-out through a U.S. stock broker, independent agent, or an employee are not considered to cause the nonresident to be “engaging in a trade or business within the United States”.

Publicly traded stock market gains (from NYSE, NASDAQ or AMEX listed stocks and bonds) accruing to an offshore company are free of US capital gains taxes by the Internal Revenue Tax Code’s statutes, but “US Shareholders” can have a tax liability (indirectly) if the offshore company is a “Controlled Foreign Corporation (CFC) (i.e., “more than 50% of voting and non-voting stock is owned by US SHAREHOLDERS). See sections 951 thru 958 of the IRC. See especially Code-Section 951(b) for the definition of US SHAREHOLDERS.

American taxpayers that use tax havens are taking more risks (generally) than a foreign non-resident alien (not a US citizen). Whether an American citizen taxpayer will have a tax liability on the offshore company profits depends on a lot of things – including what kind of income is produced by the company (i.e., Subpart F or non-Subpart F) and how many shares in the company you own, and whether the offshore company is a CFC – as defined in the Internal Revenue Code in Sections 957 and section 958.

The Old Monied Dupont Nemours and Roosevelt Families Buy a Tax Haven

Want to know why and how the old monied Dupont Nemours and Roosevelt families were able to buy 4,000 acres of waterfront property on the island of Provindentcials in the tax free, crown colony (or “Overseas Territory”) of the Turk and Caicos Islands for 1 cent an acre?

This 4,000 acre sale (now a marina and resort town – with an airport for jumbo jets (the $50,000,000 airport was donated by the UK government) went down in the 1970′s – not the 1870′s!?!?

The land was a “business-to-business” gift by the Crown to the du Ponts and Roosevelt families for their “aid and arms” to Britain and the English people during WWII.

The aid included 50 destroyers, and an endless suppy of high explosives and other supplies the British and Sir Winston Churchill badly needed.

Source: A Turks & Caicos Government 3 full page advertisement in Investor’s Daily (1985).

Was this the most profitable real estate investment of the 20th century? A quarter acre lot in the gated community of Sandyport here in Nassau, Bahamas sells for approximately $260,000 today. Half acre canal lots in Lyford Cay sell for about one million dollars.

Do the math. On an initial investment of just $40, the 4,000 acre property might be worth almost 4 BILLION dollars today.

Today, you need to know the US tax Code inside and out. You can’t just rely on your advisors. 

IR-2005-83, Aug. 29, 2005 WASHINGTON — KPMG LLP (KPMG) has admitted to criminal wrongdoing and agreed to pay $456 million in fines, restitution and penalties as part of an agreement to defer prosecution of the firm, the Justice Department and the Internal Revenue Service announced today.

Source: http://www.irs.gov/newsroom/article/0,,id=146999,00.html Copyright • 2006 Tax Haven Reporter.  

“All rights reserved” – Reproduction without the permission of the author is prohibited. 

Pursuant to Internal Revenue Service guidance, be advised that any federal tax advice in this communication, including any attachments or enclosures, was not intended or written to be used, and it cannot be used, by any person or entity for the purpose of avoiding penalties imposed under the Internal Revenue Code.