Wall Street firms love the offshore tax havens and use them all the time – every day – to completely avoid capital gains taxes. The money doesn’t even have to be sent offshore, but can remain in the same bank in New York you bank at now. It’s called a “capitalization”, and it’s perfectly legal to do. I recently had a client open an account in California for a FC (Foreign Corporation) with one of the biggest banks in the world. It took 4 months.
Harvard business professor Mihir Desai calculated that in 2008 there were three U.S. initial public offerings of stock by tax-haven-incorporated companies for every 10 U.S.-incorporated IPOs. Bidu and Alibaba are headquartered in the Cayman Islands. So what’s the attraction?
California has the highest capital gains tax rate in the US at 13.3%. The combined long term (LT) federal and state GGT rate is 33%. (includes a 3.8 percent surtax for those earning over $200,000). New York is just a percentage point behind (if you don’t consider NYC taxes).
But what could be worse than that? If you are an options or futures trader or you trade commodity contracts, the ST CGT can be devastating.
Short-term capital gains are taxed as ordinary income. This means any income you receive from investments held for less than a year must be included in your taxable income for the year. If you have $60,000 in taxable income from salary and $5,000 from short-term investments, your total taxable income is $65,000. If you file as an individual, you would be in the 25% tax bracket and would owe $12,021.25 in income tax for the year (using 2015 tax tables). (Investopedia).
Note: If you are in the upper tax bracket and have income over $200,000 short term CGT is 39.6%, and in California and New York the combined Federal and State tax rates would be almost 48%.
The US Tax Code allows for the complete avoidance of these high GGT rates if you use an offshore company to do your trading in a no-tax haven like the Caymans, Anguilla, Bermuda or the Bahamas, but only if the offshore company has no ECI.
Read this link for the IRS’s description of Effectively Connected Income (ECI). https://www.irs.gov/individuals/international-taxpayers/effectively-connected-income-eci
NOTE: The IRS tells you…” If your only U.S. business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U.S. resident broker or other agent, you are NOT engaged in a trade or business in the United States.”
480,000 IBCs in BVI; (pop 26,000)
100,000 “exempt companies” in Cayman;
45,000 IBCs in the Bahamas;
30,000 cos in Bermuda
25,000 IBCs in Anguilla
None of the Caribbean (tax) havens levy an estate tax or a capital gains tax. None of the tax havens above levy any personal of corporate income taxes at all. No special business license is required for an offshore company. These companies are also exempt for most SEC filing regulation – until they are listed on a US stock exchange.
And most importantly of all, offshore companies (called Passive Foreign Investment Companies by the IRS) don’t have to file US income tax returns so long as they have no ECI. https://www.law.cornell.edu/uscode/text/26/1297
Overseas agent / Anguilla Registrar / Since 2001
SEC Registered Investment Advisor / Since 2009
1 242 327 7359
1 242 359 0202 (cell)
1030 Bahamian companies since 1990
360 Anguilla companies since 2001
Offshore since 1990.
- We are a tax consulting and company formation firm located offshore in the sunny, tax free Bahamas since 1990.
- Anguilla is a UK overseas territory with same tax status as Cayman Islands.
- All the money and technology to create their offshore registration services came out of London.
- Anguilla was one of the very first tax havens that adopted an online registry service.
- QEII is the head of State.
- Contact us: firstname.lastname@example.org or email@example.com