Investors Offshore Bait and Switch

20 Mar
Cook Islands for Investors Offshore article

Cook Islands half-penny stamp

The two biggest problems to most offshore structures is Reporting & Liquidity. Their reporting is complicated and expensive and their liquidity is none!

Some complicated structures require high intensity tax filings, often times these structures were created by the person you pay to do your tax filing. Imagine buying an offshore structure, from the person who increases his annual revenues by encouraging you to invest offshore with a lousy plan?

It makes no sense to open a foreign brokerage account as a US resident because similar to a USA brokerage account your choice is restricted to onshore. Through a foreign brokerage account none of the Luxembourg funds ($23 Trillion) are available to USA persons. Through a foreign brokerage account a US person can only purchase the same products as he or she can purchase back home from Schwab or eTrade etc…

The new breed of overseas online discount broker, are just selling an offshore address, not a wider and deeper investment choice. Although they may offer discount prices and good service, there’s no advantage to being offshore. You can purchase foreign stocks from any USA broker but you need to be inside a regulated asset protection structure to truly invest FROM offshore, and thereby take advantage of the world’s best investment funds, listed in Luxembourg.

The Myth of Offshore Banking Privacy

You may have heard about the great “private” offshore products from one of the most respected sources. The Cook Islands is an example of a jurisdiction to worry about, for the following reasons:

  1. The Cook Islands is an independent country, recognized as such by the US and by New Zealand. New Zealand, for reasons of its own, has taken on the role of a protective big brother for the Cook Islands and is not going to cooperate with any effort to undermine its self-sufficiency.
  2. The Cook Islands is not a banking center. There is no body of financial accounts there that the US government might become interested in.
  3. The US government no longer needs to press the government of any foreign country to learn about your financial life. They have easier ways to get the information.

It is foolish for anyone in the US to base any plan on the assumption that the US government won’t find out. The prudent assumption is that sooner or later all the details of your financial life will come to rest in a government computer—if they haven’t done so already. If your plan somehow adds to your privacy, that’s to the good. But if your plan depends on privacy, you should get a new plan.

When the US government wants to know something about your finances, they don’t need to squeeze any financial institution in the Cook Islands or anywhere else. It’s much easier for them to make up an answer and send you the giant tax bill it implies. Then it will be up to you to present information disputing the bill, with criminal penalties for straying from the truth.

Investors Offshore get the FATCA Bait and Switch

FATCA = Enforcement – it does not, and has not, changed IRS Reporting rules for USA persons.

There are firms selling services to investors offshore on the promise that they are ”exempt from FATCA”. Nothing has changed the reporting rules of USA persons, which means that the foreign brokerage is a huge problem of costs that exempt any low cost broker/dealings from being a benefit:

Although you may have an account with an offshore broker the trading clears through a foreign financial institution, which is FINRA regulated and may be FATCA compliant

  1. Regardless of your being ”FINRA regulated” connected your US Person to an offshore brokerage account are exposed to a PFIC rules which are an inch wide and a mile deep. (Passive Foreign Investment Company, IRS Form 8621)
  2. Additionally, if you open a foreign brokerage account with an offshore corporation, ie. a Hong Kong IBC/ LLC or any location outside the USA, your Foreign Brokerage account investments then are a PFIC.

You can solve these problems by creating a 402b retirement plan, inside a regulated asset protection structure, and thereby open the doors to the best offshore services, to USA persons globally.

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