Regulatory driven offshore asset protection

12 Feb

United States Seventh Fleet - offshore asset protectionAll foreign investment capital needs to be looked at because of the expanded scope of the U.S. Treasury form FinCEN 114 (FBAR), the Foreign Account Tax Compliance Act (FATCA) and Intergovernmental Agreements (IGA).

The rule that changed everything is the Foreign Account Tax Compliance Act (FATCA). Continuously there is the ever present report to the U.S. Treasury (FinCEN 114) which has a reporting trail that goes back forever; and most people don’t even really understand how it works.

Additionally, there is the technical rule, which is the Passive Foreign Investment Company (PFIC) IRS Form 8621. The IRS says that unless the foreign income is specific in the tax code as not being income from a PFIC then it is PFIC income. PFIC income is devastating for any type of investment overseas.

You must go through the process of analysis and it is regulatory driven. There are new rules on how to invest overseas and you can take it that all forms of overseas investment structures or forms should be regarded as reportable and a Passive Foreign Investment Company (PFIC) except for one.

Whether it is the client himself or the financial institution they really need to know their regulatory position in the first place. With this 402(b) structuring you know that your reporting position is exactly defined in Intergovernmental Agreements. When we don’t have to think about reporting then the real issue becomes the proper one; investments.

In the area of looking at what a U.S. person should or shouldn’t be doing, actually starting with tax planning is completely the wrong place to start. You should not start from a determination of how much tax I am going to save and then attempt to bend everything; which is what many foreign trusts and foreign entities force upon you. Referring to those things that are not regulatory driven for asset protection, tax efficiency or investing is not clever.

Instead of looking at complicated legal structures or regimes that are advertised frequently and commonly it should be appreciated that U.S. tax reporting is now legally so comprehensive that none of the commentaries on foreign investment entities out there, although they use to be excellent ideas, have any current value.

Financial entities available 20 years ago or even 5 years ago were a marvellous ideas but that was then and this is now. These old things are like a stock market analysts report which is out of date before they are printed, and that is the difficulty with them. There are a number of ideas that have been around for a long time that are not operable and not trusted these days.

Managing of foreign financial accounts worldwide whether you are from the USA or from the planet Mars you move down two paths.

  1. one regulatory path is fully reporting on a continuous basis
  2. exempt from reporting path on a continuous basis.

Most people have no idea that two paths exist.

It will gradually dawn on people that there is an entire financial body, a group , that are regulated, registered and recognized by governments as exempt from reporting on a continuous basis.

This significant part of the World’s Economy is exempt From U.S.A. and O.E.C.D. Foreign Financial Account Automatic Exchange of Information Agreement reporting.

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