The United States as an "Offshore Tax Haven"

Most financial experts agree that the United States is a primary location for international business. The presence of good banks,advanced infrastructure, a consistent legal system and a stable government are all characteristics of the United States that are taken for granted. However, many people do not realize the enormous tax benefits given to "non-resident aliens" making passive income in the United States, or earning income outside the United States and simply using the US banking system as their own personal "offshore tax haven." The United States does not tax non-resident aliens for any interest income or dividend income derived from the United States. There is zero capital gains on profits from investments. There is zero tax on income earned outside the USA. Only active United States derived income is taxed. Also, various tax treaties give a United States company certain tax advantages when doing business outside the USA.

The Definition of "Resident"

One of the most important issues is that of maintaining a"non-resident" status. Unfortunately many people confuse the immigration definition of resident with the tax definition of resident.Under the immigration laws of the United States, a resident is only someone who has been given a permanent residence visa. But under the tax laws a resident can also be someone who has maintained a "substantial presence" in the United States regardless of immigrations status. There is a specific formula as to when someone meets the"substantial presence" test based upon the number of days they have been present in the United States for a given year and the two prior years, but to be safe, the non-resident should stay in the United States no more than 182 days in any given year.

The "Pass Through" or"Disregarded" Tax Entity

The best way for a non-resident alien to take advantage of these tax benefits is to use the Limited Liability Company (LLC). A Limited Liability Company is an entity that has the same limited liability characteristics as a corporation, but the ease of management characteristics of a partnership. If properly structured,the Internal Revenue Service (I.R.S.) views the LLC as a "disregarded"tax entity which means that the I.R.S. disregards the existence of the LLC and treats the income as if it were earned by the members or share holders. If there are two or more members of the LLC, then it is treated as a partnership and must file a partnership tax return. If it has only one member who is an individual then it is treated as a sole proprietorship. For a non-resident alien, this means that the LLC is disregarded by the I.R.S. and income of the company is taxed at the more beneficial non-resident rates, and unless it earns active income derived from U.S. source income there is no reason for the LLC to even file a Federal tax return. Yet for all other purposes the LLC will be treated as a "domestic" entity. As far as banks and other parties are concerned, the LLC is a US domestic entity.

There are many states in which you can form an LLC, but we suggest the use of an LLC in a "low" tax state such as Texas. Traditionally, Delaware has been the jurisdiction of choice. The most commonly stated reason is that Delaware law is more mature and developed. This may have been the case 50 years ago, but is no longer the case. Delaware law is primarily defined by court cases (case law), and no longer has any real advantage over other states. In many cases it has a real disadvantage since it involves subjecting a business to often vague and unclear court rulings. Over the past 25 years, the Texas Legislature has committed itself to codifying Texas business law, and has made great efforts to simplify and clarify Texas business law to be more business friendly. The commitment of the Texas Legislature to resolve important business issues by statute rather than by lawsuit is a significant advantage. Texas is pro Business, and Texans pride themselves on a reputation of "rugged individualism". Texans do not believe that the government should get involved in anything other than the most basic of issues. There is no income tax in Texas, and businesses face a much lower level of regulation than in other states. Annual reporting requirements for companies are minimal. Texas laws and business climate also promote Privacy and Asset Protection. Texas does not require companies to disclose the names of individual shareholders, and never requires disclosure of individual tax identification numbers. However, there are circumstances where it is advisable to use other states. For instance if you are looking to obtain financing from “venture capitalists” you should first find out what is their preference. In some cases Nevada can provide some unique (but sometimes overstated) benefits regarding privacy. We can establish a company in virtually any state within the United States of America.

How can a U.S. LLC Help You?

There are a lot of ways a non-resident alien can benefit by using a US LLC:

*An investor looking to invest in stocks,bonds or other types of investments in the US will pay no tax on the income earned, and will also avoid withholding.
*Investments in U.S.real property can be done with no capital gains, and with careful treatment, no withholding.
*An investor can use the LLC to do business outside the USA since it will be outside the jurisdiction of the I.R.S., yet gain valuable tax reduction benefits that may accrue to U.S. entities.
*An investor may be able to reduce non-U.S. taxes since the U.S. has tax treaties that often give very favorable treatment to U.S. entities. (An example would be the US LLC owns land or other property in a jurisdiction with a tax treaty with the US - this will often reduce capital gains to zero.)
*Some investors are able to obtain tax benefits by using "transfer pricing" strategies that transfer otherwise taxable income from a high tax jurisdiction to the no/low tax US LLC. (An example would be a non-U.S. buyer of goods and or services using the US LLC as a middleman for purely export purchases – as long as the US LLC avoids certain pitfalls there will be no taxes on income earned from such transactions.)
*Finally, the US LLC may just be a very nice way of protecting assets in a private and secure manner by simply depositing funds into a US bank account, brokerage account,or insurance policy.

Advanced Planning Techniques

There are other more advanced ways of using the US LLC, often with other entities, that can further enhance privacy, asset protection and tax reduction. One method is to have a specially designed International Privacy Trust serve as the owner of the LLC. If properly structured and maintained (and depending on the jurisdiction of the client), the International Privacy Trust will act as a bullet proof asset protection and probate avoidance vehicle (two very reasonable goals that will defend against “sham entity” accusations) while at the same time serving as a very strong tax reduction strategy (the Trust’s jurisdiction is a “No Tax” jurisdiction). Also, because of the way in which the International Privacy Trust is structured, without court order it will be very difficult to discover the true ownership of the US LLC (and even then it will probably need to be a court order from the jurisdiction of the trust).

In some Jurisdictions, particularly those whose legal systems is based on European Code, the International Privacy Trust may not be enough. For those clients it is important to have a corporate entity own the US LLC, since the Code does not treat trusts in the same manner as British based Common Law systems. In these cases we advise our client to utilize an International Business Company (IBC) formed in a friendly jurisdiction like Belize which acts as the ideal intermediary for the structure, and is readily accepted in Code Jurisdictions as a separate entity apart from the client. Then the International Privacy Trust owns the IBC to add additional asset protection, tax reduction, and privacy to the structure.

Please feel free to contact us if you would like to discuss these matters further.

NOTE FOR US CITIZENS/RESIDENTS:

There has been a growing number of individuals who reside in the USA or who are US citizens contacting us asking, “How can this system work for me?” It is possible to arrange the system in such a way as to give residents and citizens of the USA the same benefits as those described herein. However, it is very important that the system be established with great care. Only The Advanced World Commerce Package is appropriate for residents and/or citizens of the United States of America, and even then special care must be shown to insure that the structure meets stringent criteria, much more so than for individuals from other jurisdictions. Furthermore, the system will only prove effective in regards to “non-US Source Income” and/or certain types of “Passive Income” which are highly technical issues. If you are a resident or citizen of the USA, and you are looking to establish a system that will allow you to use US banks while benefiting from non-resident status, please contact us for further information.