Offshore Asset Protection
When it comes to the topic of offshore corporations, some people immediately think of illegal tax shelters, but that is not the case. Currently, the IRS is working tirelessly to track down U.S. citizens and residents with unreported offshore income or assets and the new FATCA regulations make it virtually impossible to hide from them.
But there are many benefits to moving businesses overseas that can legally protect your assets and eliminate or reduce not just your U.S. taxes, but also those assessed by another country where you may reside. When the corporation is set up according to the letter of the law, you can assume the benefits and avoid problems with the IRS.
Most of us are aware that U.S. persons (citizens or permanent residents) are taxed by the IRS on their worldwide income—regardless of where they live. And, you have to report your assets to the IRS, whether or not you owe taxes. The advantages of offshore corporations are different depending on your residency. The benefits for those living in the U.S. are primarily for asset protection while the tax breaks are afforded to those who live abroad.
Placing assets into offshore corporation can offer a strong layer of protection from future liabilities. If you have bank accounts and other assets owned by your entity they are more difficult to uncover through an asset search. By titling assets to the company, the assets are no longer tied to your name. Therefore your assets can be shielded from legal challenges, judges, and court rulings simply by incorporating offshore. Lastly, in most cases the laws of the jurisdiction of incorporation are the ones that are applied, not the country where the suit originates. So the offshore corporation can maximize asset protection and diversify your holdings.
When you live abroad, the tax advantages of forming an offshore corporation can be substantial. If you qualify for the Foreign Earned Income Exclusion (FEIE), for 2015, you can earn up to $100,800 in salary free of federal income tax. According the IRS publication for FEIE qualification:
“To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must meet all three of the following requirements.
Your tax home must be in a foreign country.
You must have foreign earned income.
You must be one of the following.
A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.”
Whether you are self-employed or employed by another company doesn’t matter. However, if you are self-employed and operate your business through an offshore corporation, you can take a salary from your company, use the FEIE, and still avoid U.S. taxes that you would have to pay if you lived and worked in the U.S. If you are married and both working, you can earn combined salaries of $201,600. Should your company’s net earnings exceed $200,000 you can generally hold the additional profits in your company as retained earnings and you won’t pay U.S. taxes until you remove it from the offshore company.
In many cases, you will not have to pay local taxes on foreign source income (unlike the U.S.). This means that if your customers are outside of your country of residence, you might not have to pay any local tax, or pay only on the money you bring into the country.
When Esquire Group assists a client in forming an offshore corporation we first consider the offshore jurisdiction itself. How business friendly is the country in terms of business operations and tax regulations? Are there limited compliance reporting requirements? What are the maintenance and operating fees? Anonymity—do the registrars maintain privacy in regard to directors, shareholders, and beneficiaries?
There you have it. Asset protection if you live in the states and that is your goal, or, if you live abroad, reduced or eliminated taxes. Contact Esquire Group today to discuss the possibility of setting up your offshore corporation.
