Avoiding US Gift taxes, Estate taxes and Capital Gains taxes with offshore companies domiciled in no tax havens.

I’ve been offshore in the Bahamas since 1990. We formed over 1300 foreign companies (FC) in no tax havens just like Microsoft and IBM. Today, if you don’t plan to file the right IRS information forms, there is a 90% chance the IRS will “bust” you into tears or bankruptcy. Contact me if you need to talk (taxman@batelnet.bs). To date, I’ve never had a client put out of business by the IRS.

Visit my Linked-in website for new articles, including:

In 2011, Google shuffled four-fifths of its profits through a subsidiary in the tax haven of Bermuda, cutting its worldwide tax rate in half and its tax rate in some countries to nearly zero. Google boss Eric Schmidt said in 2012 he was “very proud of the structure that we set up… it’s called capitalism”. https://www.linkedin.com/feed/update/urn:li:activity:6264790646238830592/

 Tips most offshore incorporators don’t know.

The IRS tax you as the shareholder of the FC, based on your “pro rata” share in the offshore company’s annual profits. The company itself does not have to file a tax return. https://www.linkedin.com/feed/update/urn:li:activity:6267364669355278337/

We are offshore service providers since 1990. https://www.linkedin.com/feed/update/urn:li:activity:6258270191612940288/

Call my Magic Jack number in the US with your questions. 954 580 7491 It’s a free call. Or call my office in the sunny, tax free Bahamas 242 327 7359.

 

Silver Lake, the $25B VC firm from Silicon Valley, avoided more than $2B in Federal Income Taxes using two Cayman companies when they acquired Skype for Microsoft (Bill Gates) in 2011. In case you don’t remember, Microsoft paid $8.5B for Skype. Ouch!

skypeSL and WS use tax havens every day. The IRS let them get away with it. No audit. No tax. Why? Offshore companies (called Passive Foreign Investment Companies or PFICs) don’t have to file US income tax returns if they don’t have ECI. Mitt Romney’s Bain Capital had 138 Cayman PFICs. Bain calls them private equity companies.

Most tax lawyers won’t tell you that there is no gift tax between non-resident alien individuals or corporations under the US tax code. So, if a foreign company (FC1) incorporated in a no tax haven like Anguilla or Cayman gives $5,000,000 to another FC2, there is no US gift tax even if the companies have US shareholders. Even more interesting is FC1 and FC2 don’t need to file US income tax returns or pay any US income taxes so long as they don’t have ECI (Effectively Connected Income).

Cayman-island-tax-haven-for-the-rich--300x224

Here’s the IRS link that describes the type of income you can’t have if you want to avoid US taxes with a tax haven holding company.

Note, that Goldman Sachs (Cayman) (and most all offshore American owned holding companies/banks in tax havens) get a special tax exemption/loophole under the US tax code for their ECI. Open the link now and read especially:

NOTE: 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” – IRS / Effectively Connected Income (ECI) https://www.irs.gov/individuals/international-taxpayers/effectively-connected-income-eci

There’s a reason Goldman uses this offshore strategy to avoid US taxes, and I’ll try to explain how in few words. Take notes: Goldman Sachs uses two offshore companies in the Cayman Islands in their offshore plan – one to own most all the shares of the other. http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=139744266

Example #1: Suppose Wall Street Johnnie (WSJ) starts up an Anguilla/Cayman company (FC1) by buying 100 shares for $10,000,000. This is called a capitalization by tax lawyers, and is a non-tax event. Now, let’s assume FC1 has an authorized capital of 50,000$US. Suppose 49,890 shares of FC1 is owned by FC2 (a second offshore Anguilla company – like the GS setup in the Bloomberg link).

WSJ has to file an IRS form 8621 annually with his tax return in the year following his investment, and WSJ needs to report the income of FC1 on this form 8621, and pays taxes, but the amount of tax he has to pay is dependent on his “pro rata” share of FC1. Let’s investigate form 8621.

“Pro rata share” is the IRS term you have to understand. Its mentioned in the instructions for form 8621.

https://www.irs.gov/pub/irs-pdf/f8621.pdf

FC1 is formed in 2016 and has $10,000,000 with a US stock broker. FC1 has $500,000 in short term capital gains from trading in the stock market. FC1 doesn’t have to file a US tax return, but WSJ has to file a form 8621 and report his pro rata share of the offshore company profits.

 I have several clients with brokerage accounts with brand name brokers within the USA. https://www.linkedin.com/pulse/ipos-offshore-private-family-owned-hedge-funds-capital-tax-havens?trk=prof-post

Here’s how you figure the tax. WSJ’s pro rata share is 100 shares divided by 50,000 shares outstanding which equals a fraction (.002%) – which multiplies (morphs) into $1,000 of income. WSJ needs to put this $1,000 on the form 8621 and pay taxes on it at the ordinary income tax rate. For this example, we’ll assume WSJ is in the 25% income tax bracket, so WSJ owes the IRS $250 on the offshore company’s profit in 2016 ($500,000 duh!).

NOTE: When WSJ files his form 8621 in 2018 (for 2017 offshore company profits) the IRS will allow him Long Term Capital Gains tax treatment (at a tax rate of 20%) instead of taxing him at ordinary income tax rates (as high as 39.9%).

Under the Passive Foreign Investment Company (PFIC) provisions of the US Tax Code, WSJ would go to Part II of this 3 page Form 8621, and check the first Election box, and declare his holding as a Qualified Electing Fund (QEF).

Under the PFIC rules, WSJ can be a director of both FC1 and FC2 and it doesn’t change things. Once he makes the QEF election he is compliant and home about tax free for years to come, because unlike the Controlled Foreign Corporation provisions of Section 951 thru 958, it doesn’t matter how many US directors an offshore company might have, and the IRS doesn’t care if US directors “control” FC1 or FC2. A PFIC can have one US citizen as a director. Perfectly ok.

ASSET PROTECTION USE: Suppose WSJ is 40 years old and remarries a 25 year old, but wants to leave the $10,000,000 offshore to his daughter (WSG) in the event of his death. He already has a $5,000,000 home on Long Island that his new wife will inherit, and he wants his daughter from his first marriage to have “control” of the $10,000,000 offshore – not his new wife.

The Federal Estate Tax exemption for US citizens is $5.45 million in 2016, but foreigners get NO FET exemption – excepting just $60,000. https://www.linkedin.com/pulse/federal-estate-tax-chart-below-shows-exemptions-us-citizens-havens?trk=prof-post

FC1 sells 10 shares to WSG for $1,000. WSJ appoints WSG as a director and secretary for FC1 and FC2. Should WSJ die, WSG will be able to continue controlling both offshore companies the same as when her father was alive. His second wife would be entitled the FMV of the 1000 shares her husband WSJ owned with a value of $200,000, but that is all she and her estate tax lawyer can lay claim to.

For extra protection: WSJ can leave his 1000 shares in FC1 to his daughter WSG by way of his US last Will and Testament.

OFFSHORE MANAGEMENT COMPANY: FC2 can collect management fees from managing a portfolio of stocks for Americans so long as FC2 does not have ECI.

EXAMPLE #2. FC2 has a profit of $500,000 from the sale of $5,000,000 vacation home in Bermuda. WSJ would need to file a second form 8621 and put his PRO RATA share of the $500,000 profit on his tax return. WSG would also have to put her PRO RATA share of the $500,000 profit on her tax return. Computing WSG’s tax liability on Form 8621 based on her ownership of 10 shares in FC1 and we find that she would have $100 in taxable income.

Big savings for both WSJ and WSG on the sale of the Bermuda home.

Ninety-nine present of the companies registered in the Caribbean are PFICs.

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;                                                                                                                        85,000 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

IRS Form 8621 with instructions – Don’t go offshore without filing this form.

https://www.irs.gov/pub/irs-pdf/i8621.pdf

https://www.irs.gov/pub/irs-pdf/f8621.pdf

Kind regards,

Tom Azzara

Overseas agent / Anguilla Registrar / Since 2001   

SEC Registered Investment Advisor / Since 2009                                                                      Nassau, Bahamas

Havens67@gmail.com

taxman@batelnet.bs

1 242 327 7359

Visit my linkedin page for more articles on international taxation and tax havens.

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1030 Bahamian companies since 1990                                                                                        

360 Anguilla companies since 2001
Offshore since 1990.
Contact us.

  • 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.

Chart Offshore Big companies

https://www.linkedin.com/pulse/avoiding-us-gift-taxes-estate-capital-gains-offshore-companies-tax?trk=prof-post

Estate Tax

Bet you didn’t know the US FET applies to you – even if you’ve never stepped foot in the United States? The IRS can get up to 40% of your US assets (US stocks, US homes, US raw land) if you don’t plan just right!
https://www.linkedin.com/pulse/federal-estate-tax-chart-below-shows-exemptions-us-citizens-havens?trk=pulse_spock-articles

Cayman Stamp Queen

The IRS and the US Justice Department has just begun their prosecutions of Cayman Island banks only last month. That court room drama was a solid victory for them. And.., it is just the beginning for Cayman bankers. Like a junk yard dog, you never want to run into these guys. The IRS is relentless, well funded and powerful.

https://www.justice.gov/opa/pr/two-cayman-island-financial-institutions-plead-guilty-manhattan-federal-court-conspiring-hide

goldman shipping

https://www.linkedin.com/pulse/you-ready-storm-coming-your-way-cayman-islands-bahamas-tax-havens

 

 

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About New Providence

Overseas agent - Anguilla registrar (since 2001) Company Formations/Trusts New Providence Estate Planners, Ltd. (since 1995) 54 Sandyport Drive P.O. Box CB 11552 Nassau Bahamas 1 242 327 7359 Fax/phone: (242) 327-7359 E-mail: taxman@batelnet.bs www.bahamasbahamas.com http://seekingalpha.com/user/7226491/profile Need good advice for your international operations? Hire us. Need planning that really works to fend off the IRS? I have 23 years experience. We form offshore company and foreign trusts. Over 1,330 offshore companies since 1995. We can win with FATCA, because we know US Tax Code.
This entry was posted in bahamas, banking, capital gains taxes, Caymans, companies, estate tax, financial, formation, Goldman, irs, JPM, offshore, stock market, tax, tax avoidance, tax planning, Uncategorized, wall street and tagged , , . Bookmark the permalink.

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