The Mystique of "going Offshore"
| Publication year | 1996 |
| Pages | 19 |
| Citation | Vol. 9 No. 10 Pg. 19 |
David D. Beazer, J.
INTRODUCTION - SUNNY PLACES AND SHADY PEOPLE
The casual reference to Switzerland, the Isle of Man, the Bahamas, the Caymans, and the Cook Islands will likely conjure up images of the ultrarich secretly amassing money in order to avoid taxes and launder unclean funds. While in the past, part of this notoriety has been warranted, today's offshore reality is something very different. The magnitude of financial activities in tax havens, now more accurately called offshore financial centers (OFCs) is immense. Walter Diamond, economist and author of Tax Havens of the World, reports that approximately half of the world's funds pass through OFCs each year and is a sum in excess of five trillion dollars.[1]
There are many reasons why the offshore world has grown to such proportions, but essentially an individual who uses an offshore jurisdiction has the same motivations as someone "onshore" who goes to an accountant for insight on tax savings, or to an attorney to limit the risk of liability. Today's OFCs fulfill a multitude of diverse needs, including tax planning, international estate planning, global investing and banking, protection of privacy, facilitation of international business transactions, relief l from regulatory burdens, reinsurance, shipping, expatriation planning, and asset protection planning. OFCs are no longer just sunny places for shady people.
OFFSHORE BANKING -BURIED TREASURE
In its broadest terms offshore banking can be explained as the carrying on of banking and financial activities in foreign jurisdiction. For IRS purposes even something as innocuous as a bank account in Canada is considered to be "offshore banking."[2]A more practical definition for offshore banking is the use of a financial institution in a tax-free environment which is essentially free of fiscal and exchange controls. There are two basic techniques for utilizing an offshore bank: (1) An individual or entity can use another's offshore bank, such as an account in the Bahamas with BankAmerica or the Royal Bank of Canada, or (2) An individual or entity can form an offshore bank.
Formation. In the more suitable jurisdictions the incorporation of an offshore bank is derived from the English law registration system. The registration system includes a two-tiered application process. The first tier is a permit to incorporate, and the second tier is an offshore bank or financial institution operating license. Application disclosure requirements customarily ask for information about the principals of the bank, its capitalization amounts (including audited financials), the proposed management structure, and its intended situs of operation. There are two types of operating licenses issued, type "A" and type "B". A type "A" operating license is broader in scope and the holder can transact business both within and without the local jurisdiction, while type "B" (or the "brass plate bank") is limited to outside transactions. U.S. shareholders of an offshore bank may avoid taxation of undistributed income by obtaining a certification from the IRS that the bank was not formed for, nor will it be used for evading taxes.[3]
An offshore bank has several distinct advantages over its traditional American counterpart. For example, an offshore bank's activities may extend to any legal endeavor. Manufacturing, insurance, underwriting, and the sale of securities are common activities for a private offshore bank. Offshore banking also has a high I degree of confidentiality which is usually maintained by civil and criminal penalties, [4] however, varying OFCs do have "informal" ways of disseminating proprietary information and there are experts who specialize in tracking offshore funds.
The following are some of the more popular offshore financial centers used by U.S. citizens:
1.The Bahamas - Professional services are excellent and well established, good for banking.
2. Bermuda - Good for captive insurance companies, part of the U.K., parity w/ U.S. dollar.
3. British Virgin Islands - Currency is the U.S. dollar, few professional services.
4. Cayman Islands - Still one of the fastest growing, British Crown colony, skilled professionals.
5. Cook Islands - Remote location, very aggressive trust law, limited professional services.
6. Isle of Man - Own court system, excellent professional services, aggressive in marketing.
7. Switzerland - Most stable world currency, skilled professionals, confidentiality, civil law.
8. Turks and Caicos - Relatively new and dynamic, few professional services, self-governing.
9. St. Kitts & Nevis - Aggressive trust law, a new player in the offshore word, few professionals.
Selecting both the proper jurisdiction and the appropriate trustee of an offshore bank is vital, as few offshore centers have legislated for any kind of bank deposit compensation schemes. The due-diligence laws, political stability, and the potential for the applications of external pressures also vary from jurisdiction to jurisdiction. Shell-corporation pushers, phony fund managers and fictitious banks exist, so the practitioner interested in formation options should perform thorough due diligence and stick with companies and individuals that have high-profile reputations to protect. In spite of these potential pitfalls, offshore banking is an excellent option when considering where to cache a treasure.
OFFSHORE ENTITIES -THE WORLD IS YOUR OYSTER
The offshore world contains many unusual entity and investment structures, everything from limited liability limited partnerships (LLLPs), limited partnership liability...
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