Offshore Corp/RE:Lichtenstein

[FJMcC]

Just a trader who uses american accounts and pays his taxes. Little question for anyone with experience or knowledge if this type of thing.

If one were to start a S.A. type of corporation in the BVI, Panama, St. Kitts etc. with full ownership of the shares, and no funny business at all what would the tax ramifications in the US be? If the corp. paid no dividends and simply reinvested profits, would an american owner be liable for the corporation's short term profits in FX, derivatives, futures, etc.?

Taken a step further, the corp could pay a management fee to an american LLP/LLC which would be taxed normally. this would provide good taxable income to justify/support standard of living while allowing the majority of invested income to grow with no short term trading taxes.

Isn't this basically what Soros, Jones, et alia do?

Is this being threatened now?

FJMCC

 

[Tommy Ryan]

What you have described is dubbed a CFC by the IRS. Frequently a foreign corp. is "controlled" by Ameicans there not only are no tax advantages but often significant disadvantages.

One of the problems is that American's who own securities past a threshold point in a CFC have to pay tax on their prorata share of the entity's earnings EVEN IF THOSE EARNINGS ARE NOT DISTRIBUTED.

The IRS publishes a number of publications relating to CFC. Go to their site and plug in a few phrases and they'll pop up.

But ... if you are fortunate enough to be in a Non-controlled Foreign Corporation and its income is properly classified as operating income (as opposed to investment income) the advantages can be very sweet indeed. Your investment may be able to compound indefinately without any taxation until you sell your position or otherwise put yourself in a position to have a tax liability on that income.

This area of taxation is no place for an amateur to be without top flight advice. If you buy any of the books on the subject they should be used to provoke the questions you want to ask whover you end up using for advice. Not to use as a "how to".

Always remember that making a mistake here can be incredibly costly and may even expose you to criminal penalties. If at some point you are serious about exploring legitimate avenues of this nature PM me and I'll point you in the proper direction.

If you do become involved with offshore structures be sure to comply with the regs by using experienced proffesionals and not promoters. God save you if you go with the "get rich quick" promoter and his "three easy steps" to cut out the IRS by investing offshore. Invariably what these clowns portray as legit is tax evasion pure and simple. The cost to you in interest, penalties and fees (high priced legal and accounting fees) is astronomical.

In the 70's I was a principal in three related brokerage firms two of which were offshore. The rules, compared to today, were simpler yet still complex. My partner and I were fortunate to be represented by first rate people who gave us brilliant advice.

There are still real opportunities but you must be playing on a decent size scale to make it worth the effort and expense. None of the reasonable opportunities involve "numbered or secret accounts" nor do they involve hiding your activities from the IRS. Only structures that can stand in the "light of day" can even be considered by reasonable people.

Tommy