Offshore Tax Deferred Investing
The most common use of a properly structured non-controlled Foreign Corporation (i.e. one that is typically owned by a Foundation or Trust) is tax deferred investing. The difference between losing one third or more in taxes annually and tax-free compounding over 20 or 30 years is so compelling, that no one in their right minds would choose the former option.
Even worse, annual taxes can be due on profits that have accrued in an investment situation (such as a real estate partnership), but for one reason or another have not actually been realized. Of course, there are government recognised retirement vehicles in most western countries, but in reality the choices of investment are limited and the funds can be easy prey for would be litigants, who have no problem tracking down a potential target's assets, since financial privacy provisions are non-existent in most countries today.
However, it is recommended that you check with your own country’s tax rules on the options for tax deferred investing with offshore structures. The U.S. tax code specifically makes it virtually impossible to legally use offshore structures with U.S. persons or entities as shareholders for tax-deferred investing, unless the structures primary use is for the operation of an internationally based business. As always we recommend that you consult with an expert in your country for their opinion of what loopholes can be taken advantage of. Every Western country’s tax code leaves open certain loopholes so that the elites of that country can use them to their own advantage.
U.S. Investors have a special hard time because of the aggressive nature of U.S. regulators, who are apt to impose their authority on foreign based investment providers. Many offshore funds and other investment options are not even open to U.S. persons and entities. Most of these have a track record way in excess of what investors (in particular U.S. investors) are accustomed to. U.S. securities regulations are so onerous, that even offshore investment companies can be forced to comply with U.S. regulations, if they accept funds from U.S. based investors. Moreover, U.S. authorities have been known to harass these offshore investment companies, making it very unpleasant to try do business under those circumstances. Many of these companies have therefore decided that they would prefer not to deal with U.S. regulators and consequently routinely exclude U.S. investors.
An offshore IBC provides the alternative, since that IBC is in a jurisdiction other than the U.S., regardless of where it's managers or officers are domiciled. Consequently, the offshore fund managers will not be subject to pressure from U.S. based regulators. However, be warned that many compliance officers in foreign brokerage and fund companies now will not even accept a U.S. passport holder as a signatory on the account, even if they can show they are neither an officer or shareholder of the company. Sometimes the only way round this problem is to avail oneself of professional third party account signatory services.
For those who are currently holding stocks that have a large built in capital gains, an independently managed non-controlled Foreign Corporation used in conjunction with a private annuity can help defer and/or lower those taxes significantly. This strategy, however, must be implemented before the securities are actually sold.
For more, read about how to set up an IBC owned by a Foundation for the purpose of tax-deferred investing.