Last year, the number of American millionaires fell by 100,000. Yet 200,000 new U.S. millionaires showed up overseas. Why? One answer may be that back in the1960s, the U.S. government encouraged American banks to set up branches in Caribbean hot-money centers and distant islands as an efficient means of attracting foreign money into the U.S. dollar. The initial aim was to help finance the Vietnam War by turning America into a new Switzerland for the world’s hot money. Instead this policy succeeded in turning these U.S. backed banks into a flight-capital center for third-world dictators, high net worth individuals, large and small corporations and Russian oligarchs.
What was once a relatively small and mysterious boutique industry 20 years ago has now grown into a full-blown international system of avoidance, enabling multinational corporations to evade taxes everywhere, including the United States. Over 60% of the world’s money now flows through offshore banking operations.
Most offshore investments are hidden away in remote locations, usually on small out-of-the-way islands in the Caribbean or small European states. Among the most popular are Nevis, the Bahamas, the Cayman Islands, the Channel Islands, the Isle of Man, Switzerland, Liechtenstein, and Luxembourg. But keep in mind that just because you have an account in one these places, it doesn’t mean that’s where your money is. It might just be around the corner or on the other side of the globe. The reality is, that individual and corporations are transferring their assets elsewhere because they have readily accessible safe havens to hide them in.
These permissive regulatory systems have evolved to a point that enables U.S. and European investors to shed taxes simply by hiring a lawyer to set up a boiler-plate office and finding an accounting firm willing to take its records at face value–which is good enough for the tax authorities to accept in these days of downsized fiscal operations.
To some tax experts, the resulting plunge in the ratio of corporate tax obligations to national income has been a contributing factor in America’s soaring federal budget deficit. Businesses — and especially the financial sector — establish offshore entities and adjust their transfer pricing (e.g. on sales of raw materials to refineries, and of refined or semi-manufactured products to their final distributors in the industrial nations) so as to take all or some of their profits in these tax-free enclaves.
So how would you like to have your company’s virtual office in the heart of Europe? Zurich, Switzerland could be your answer. For less than $1,000 USD, you can have your bank account statements, personal documents and all of your private mail forwarded to your virtual office in Zurich while your personal contact details are kept secure and private. Most offshore countries have information sharing agreements with various governments. Switzerland is one of the last countries maintaining bank privacy. In fact, Swiss Banks are obligated by Swiss law to keep any and all information about their clients strictly confidential
Swiss Banks offer their offshore customers a variety of services including access to international wire and SWIFT payments. You can easily deposit money orders and business/personal checks into your account whenever you want, twenty-four hours a days, seven days a week, via the Internet. And you can always take comfort in knowing that the Swiss National Bank has one of the highest reserves of gold bullion to back up its currency.
Due to advances in technology and telecommunications, offshore facilities became an integral and important part of the world’s financial system. They are used worldwide, twenty-four hours a day, 365 days a year, despite of the malicious stereotype maintained by the high-tax nations that low-tax offshore jurisdictions attract a disproportionate share of the world’s dirty money. The independent assessments of U.S. government agencies (the State Department, Internal Revenue Service, Central Intelligence Agency) confirm that offshore tax havens do not attract a disproportionate share of the world’s criminal loot. Indeed, the government agencies’ assessments indicate that dirty money is far more likely to be laundered in high-tax nations. It becomes obvious that the OECD’s and EU’s real agenda in their persecution of offshore tax havens is not the fight against money laundering but the fight against low taxes.
The common assumption supporting offshore banking is that as people gain wealth, they naturally want to protect it from political instability, unnecessary taxation, extravagant heirs and any other unwanted creditors. Offshore companies have become a viable way for individuals and corporations to achieve the level of protection they require and desire for their assets. Offshore IBC (International Business Company) have also been a useful accounting tool for the medium and small businesses during the past few decades.
The components of an offshore IBC are as follows: Offshore IBC is tax exempt on profits. Offshore IBCs cannot conduct any local business in the jurisdiction of incorporation. Offshore IBC can make local payments for government fees, registered agent services, legal or accountancy services (if any).
Typically used for investment purposes, IBCs are also utilized as a purchasing entity, to help individuals avoid property or an inheritance taxes, whereby the transfer of wealth to an offshore company would avoid undesirable consequences (e.g. time delays with probate, inheritance tax, saves legal fees). Individuals make common use of offshore companies to hold their investments such as stocks, bonds, and cash because there is no income tax on interest earned or capital gains. IBCs have been used to protect assets against possible litigations, unwanted creditors, former spouses, and for e-commerce businesses, where all of your profits will be tax free (no corporation/income taxes). The uses for an offshore company is actually only limited by the imagination of the individuals or business entities involved.
Laws against fraud, embezzlement and tax evasion have been on the books for centuries, although many of these poorly written laws have never been seriously enforced. Recently, the International Community has taken actions, which make IBCs more transparent, encouraging firms and individuals to disclose their offshore assets and pay their fair share of the tax burden.
Legally, you must file for your offshore assets. Accounts held by American citizens offshore must be recorded with the U.S. Treasury by filling out Form 90-22.1. The information contained in the actual report is up to you, but if you never legitimately document the account, you may find yourself with some auditing problems down the line. This is one of the obvious draw-backs to offshore investing; unless you register all of the assets held in your account with the US Treasury, you may be confessing to the authorities that you were attempting tax evasion, if and when you do get audited.
So keep in mind that offshore investing isn’t simply a chance to “hide” your money. It should only be used as an opportunity to diversify your assets across different regions and different currencies.