Here is a country where income from active trading is always taxed as capital gains

[luisHK]

Not sure why you bring this up, but about Gibraltar afaik she would get a residence permit as a dependent, regardless if i go for a Cat 2 or Employed (set up a corporation and hire myself in Gib) visa. She already holds a long term EU family related residence permit, although we no longer live there, which allows her to visit Gibraltar - lawyer I talked to didn't know or didn't want to mention that rule, claiming she couldn't visit, another instance where looking up on the internet can bring better information than through seeking legal advice. Even the Gib immigration agent on our first entry there didn't seem to have that rule right, although we entered after some discussion. We were claiming a different rule that didn't apply back then, and he was offering us to enter using a different rule that didn't quite seem to exist - his superior waved us in after glancing at the EU residency permit and we found later on the Border and Customs website what seemed to be the proper rule. Second entry was a breeze, who knows what third entry will be like... at least she will bring a print out of the official website mentioning the proper rule, if it's still there ! A bit worrying when planning a move to Gibraltar, that rules seem so unclear even to local authorities and lawyers.
Rules are different if the main visa holder is not an European Economic Area citizen btw, and usually i discuss tax set ups for Non US citizens - certainly met years back when more involved in physical goods trading americans running serious international businesses and using non US related strawman corporations - not legal of course but hard to prove , and trading one's wife retail brokerage account sounds even less risky, I'm not sure when it would become illegal at all, it's not like one aren't allowed to trade opm or advise a family member.
Read a couple of years back revoking one's US passport in the situation you describe becoming more popular but far from a trivial matter, plus the exit tax bites as well. Sounds crazy for an european all the inconveniences related to beeing an american overseas compared to an european (living in one own's country is different though )

 

[Pekelo]

I think I have found a much better and perfectly legal (both local and US) way to avoid much taxation:

1. Make a trading company in any of these countries:

https://www.fool.com/investing/general/2016/01/03/10-best-tax-havens-in-the-world.aspx

My personal fav is the Cayman Islands with a close second Isle of Man.

2. Make a relative (wife probably) the CEO/owner of the company, just not to be too obvious.

3. Lend out your trading capital to the company for a small 3% fee.

4. Any trading gain belongs to the company, because you are a salaried trader of the company. (just like trading for TST) Your salary is only 10% or so of the trading profits. You pay US taxes on your salary what is obviously significantly less than otherwise you would be paying as a trader.

5. The company pays little or no corporate tax on the gains.

"Fortune 500 companies with subsidiaries in the Cayman Islands include Wells Fargo, Pfizer, Pepsi, and Marriott."

If it is good for Pepsi, it should be good for you too, (and America).

6. Additional gains, anytime you travel make it a company paid business expense. Just pick times when there is something trading related in town and you spend there a few minutes.

7. Hell, even your house and car can be owned by the corporation. They pay all your insurance etc. You can set up a nice 401K contribution plan too.

"Isle of Man also offers great benefits for pensions. "Many international companies have their employee pension plans held in accounts in this small country due to asset protection and the ability to take benefits from the age of 50 onwards,"

8. You can even advertise the company to other traders with similar set ups. The company takes some profits for the set up.

Of course a fairly big trading profit is necessary where this whole shebang is worth to be set up, but if you are a big player and want to save big, no need for Russian brides.

Oh wait, others already thought of this:

https://www.caymanenterprisecity.com/cayman-commodities-derivatives-park

 

[Sig]

Not sure why you bring this up, but about Gibraltar afaik she would get a residence permit as a dependent, regardless if i go for a Cat 2 or Employed (set up a corporation and hire myself in Gib) visa. She already holds a long term EU family related residence permit, although we no longer live there, which allows her to visit Gibraltar - lawyer I talked to didn't know or didn't want to mention that rule, claiming she couldn't visit, another instance where looking up on the internet can bring better information than through seeking legal advice. Even the Gib immigration agent on our first entry there didn't seem to have that rule right, although we entered after some discussion. We were claiming a different rule that didn't apply back then, and he was offering us to enter using a different rule that didn't quite seem to exist - his superior waved us in after glancing at the EU residency permit and we found later on the Border and Customs website what seemed to be the proper rule. Second entry was a breeze, who knows what third entry will be like... at least she will bring a print out of the official website mentioning the proper rule, if it's still there ! A bit worrying when planning a move to Gibraltar, that rules seem so unclear even to local authorities and lawyers.
Rules are different if the main visa holder is not an European Economic Area citizen btw, and usually i discuss tax set ups for Non US citizens - certainly met years back when more involved in physical goods trading americans running serious international businesses and using non US related strawman corporations - not legal of course but hard to prove , and trading one's wife retail brokerage account sounds even less risky, I'm not sure when it would become illegal at all, it's not like one aren't allowed to trade opm or advise a family member.
Read a couple of years back revoking one's US passport in the situation you describe becoming more popular but far from a trivial matter, plus the exit tax bites as well. Sounds crazy for an european all the inconveniences related to beeing an american overseas compared to an european (living in one own's country is different though )

The whole ambiguity of the need for visa's is pretty frustrating given it's something that should be pretty easy to specify. I ended up getting work visa's for all my employees going to Canada even if only for day trips because we started randomly getting pulled aside for the full set of questions and the right answer seemed very much up to the discretion of the immigrations officer who may or may not be having a great day at the point you interact with them.

 

[Sig]

I think I have found a much better and perfectly legal (both local and US) way to avoid much taxation:

1. Make a trading company in any of these countries:

https://www.fool.com/investing/general/2016/01/03/10-best-tax-havens-in-the-world.aspx

My personal fav is the Cayman Islands with a close second Isle of Man.

2. Make a relative (wife probably) the CEO/owner of the company, just not to be too obvious.

3. Lend out your trading capital to the company for a small 3% fee.

4. Any trading gain belongs to the company, because you are a salaried trader of the company. (just like trading for TST) Your salary is only 10% or so of the trading profits. You pay US taxes on your salary what is obviously significantly less than otherwise you would be paying as a trader.

5. The company pays little or no corporate tax on the gains.

"Fortune 500 companies with subsidiaries in the Cayman Islands include Wells Fargo, Pfizer, Pepsi, and Marriott."

If it is good for Pepsi, it should be good for you too, (and America).

6. Additional gains, anytime you travel make it a company paid business expense. Just pick times when there is something trading related in town and you spend there a few minutes.

7. Hell, even your house and car can be owned by the corporation. They pay all your insurance etc. You can set up a nice 401K contribution plan too.

"Isle of Man also offers great benefits for pensions. "Many international companies have their employee pension plans held in accounts in this small country due to asset protection and the ability to take benefits from the age of 50 onwards,"

8. You can even advertise the company to other traders with similar set ups. The company takes some profits for the set up.

Of course a fairly big trading profit is necessary where this whole shebang is worth to be set up, but if you are a big player and want to save big, no need for Russian brides.

Oh wait, others already thought of this:

https://www.caymanenterprisecity.com/cayman-commodities-derivatives-park

Except the PFIC rules. Essentially if you're a foreign non-operating corp owned or controlled, directly or indirectly, by a U.S. person, you have to distribute most of your gains from financial transactions each year which is a taxable event. There are a bunch of legitimate tax shelters that you can operate offshore. Most of them are restricted to operating companies, i.e. those who make something or sell an arms length service like the companies you mention and specifically exclude companies where a significant part of the income comes from trading. The other case where it makes sense are when non-profits (think university endowments) or offshore entities without any U.S. connections want to avoid U.S. tax which they're really not subject to but through some complexities sometimes end up paying when working with a regular U.S. based hedge fund. Finally, private equity companies can generally get around the operating company rule depending how they invest in their portfolio operating companies so it works for them sometimes as well. For joe U.S. citizen trader, even 8 figure joe trader, there's no legal benefit to setting up an offshore corporation no matter if you put your offshore wife in charge of it or use it to buy your house or any other machination. With FACTA reporting you're on the IRS radar and the audit chances if you try this are, like I said, astronomically higher than just lying about your cost basis, if you just want to straight cheat on taxes.

 

[Pekelo]

Except the PFIC rules. Essentially if you're a foreign non-operating corp owned or controlled, directly or indirectly, by a U.S. person,

OK, so I guess the trick is to find a reliable non-US person who actually makes the company and doesn't mind to do nothing for a small % of the profits...

This is actually better than the wife owning it, because it is less obvious. Sure there is a risk element but hey, without risk there is no reward. The wife can be the salaried finance officer of the company and without her signature, no money can be withdrawn from the company's account, thus the French CEO can't steal the trading capital.

Would that work?

 

[Sig]

OK, so I guess the trick is to find a reliable non-US person who actually makes the company and doesn't mind to do nothing for a small % of the profits...

This is actually better than the wife owning it, because it is less obvious. Sure there is a risk element but hey, without risk there is no reward. The wife can be the salaried finance officer of the company and without her signature, no money can be withdrawn from the company's account, thus the French CEO can't steal the trading capital.

Would that work?

Moving to theory on how not to get caught...the problem is FATCA, hence why it was passed in the first place. You have to report on your FBAR if the total of funds you have in all non-U.S. accounts exceeds $10K, even if only for a second. And foreign banks are reqired to do all manner of reporting under FATCA, including on potential use of the "Hastert method" of breaking it into several smaller transactions. So they would flag the seed capital you sent over and set off all kinds of audit flags on you when it "disappeared". Obviously if you de-facto control the company the IRS isn't going to buy your French "CEO" when they actually audit.

I've actually researched this a bit as an aside to take a break from setting up my actual foreign subsidiary. The key I think to doing this completely legally is to make yourself a legitimate operating company to the extent you pass muster with the IRS and you trade as a side business that you ensure never gets big enough to overwhelm the operating side and make you a PFIC. Obviously that's not a nice clean easy Caymans nameplate corp, it would involve a decent amount of real work to set up and keep going. However conceivably you could buy a stable, simple business like a Coke distributor or something and put a good CEO in charge so it would be relatively hands off. Unfortunately for me my one international sub isn't in a low tax country so I would have to go out of my way to to make something like this happen. As you probably know from my previous postings I feel pretty strongly that you've lost perspective if you use your money to avoid paying taxes instead of living where you want and doing what you want, so I'd probably only do it if I really wanted to establish something in say, Isle of Man, which is a place I might not mind regularly spending time in (already did the tropical island thing in Hawaii and didn't really like it, so Caymans probably isn't for me)

 

[Pekelo]

Thanks for the lengthy response.

if you de-facto control the company the IRS isn't going to buy your French "CEO" when they actually audit.

Can the IRS audit a French registered Cayman Island incorporated company? I doubt it.

Also how about the money never leaving the US? I send the money to a US bank account owned by the Cayman company. Would that count as leaving the country? Then they open an IB account, where I have access to the capital.

Also what do you think of the last link in post #32?

 

[Sig]

Thanks for the lengthy response.



Can the IRS audit a French registered Cayman Island incorporated company? I doubt it.

Also how about the money never leaving the US? I send the money to a US bank account owned by the Cayman company. Would that count as leaving the country? Then they open an IB account, where I have access to the capital.

Also what do you think of the last link in post #32?

Two different threads of thought you have going here. The first is the idea that your foreign entity is safe from IRS audit. If it never does anything in the U.S. perhaps so, although tax treaties with France don't even make that a sure thing. But, to depend on that defense you would have had to send substantial sums overseas and Treasury would know from FATCA/FBAR, so you would be required to explain where that went at which point you'd probably need to trot out your French CEO or make something else up, either way you lose. Or you don't file your FBAR or make it up and the FATCA checks by foreign banks catch you, and the FBAR violations are super easy to prove and don't even require showing intent to defraud. So basically, any move of assets offshore is going to get you.

Track 2 you leave your assets in a U.S. account. Sadly if you're a foreign entity trading in the U.S. you're going to get nailed with the 30% witholding tax right off the top, so that nullifies a lot of advantages. Then you still have to explain the transfer of funds to the foreign corporation you supposedly don't in any way control and back to you without it being a taxable event. Bottom line you end up paying far more than just trading section 1256 contracts as a regular old U.S. citizen.

The Caymans link is aimed at the several legitimate Caymans setups I mentioned earlier; operating companies, funds with non-profit or non-U.S. LPs, and additionally any non-U.S. citizen who isn't subjected to this taxation on worldwide income we have the dubious distinction of sharing only with Libya, North Korea, Eritrea and the Philippines I think. Much of what is discussed on this thread is legal, at least variations on it, if you're say a U.K. citizen, just not if you hold a U.S. passport.

A famous quote slightly modified describes attempts to game the tax system; The wheels of the IRS turn slowly, but grind exceedingly fine.

 

[Pekelo]

Well, as long the corporate tax is much less than the individual trader tax, it could still work.

The described set up is really no different from being a trader at OneUp Trader/Earn2Trade and at the same time an investor too. I think they are looking for investors, so who is to say a trader can not be an investor in his trading firm?

________________

Slightly related topic: What I would like to know is how come extradited UK trader Sarao never paid any taxes on his 40 mm profits? I think he had a Cayman Island set up, but I think he put the money there when it was already made. Somehow the UK wasn't interested in getting its due tax...

 

[Sig]

Well, as long the corporate tax is much less than the individual trader tax, it could still work.

The described set up is really no different from being a trader at OneUp Trader/Earn2Trade and at the same time an investor too. I think they are looking for investors, so who is to say a trader can not be an investor in his trading firm?

Just to be clear, you always have to pay the individual tax in the end when your company either distributes profit to you and it's considered a dividend or gives it to you as a salary or intangible benefit (car, house, vacation home in Bali) which is also considered the same as salary. With the new corporate rates you're almost the same if you take your profits as salary or do the double taxation with the Corp tax then individual dividend tax, depends on you state tax regime (assuming marginal amounts over $128,400 when you're no longer pay SS tax)