How To Create Your Own Offshore Plan

“A partner and I built an Internet business, then sold it about a year ago. Suddenly, I had some real money, and I thought I should get serious about what to do with it…where to put it.”

The young man went on to explain that he attended an international money conference, where he met an attorney specialized in offshore structures for tax management and asset protection.

“Great, I thought,” he said. “This is just what I need.”

“Only, I’ve now spent US$80,000 with the guy,” he continued. “I guess I have what I need. I’m not sure. And, at this point, I’m reluctant to ask more questions, because every question leads to a response written by an ‘associate’ and then forwarded to the attorney for his review. I pay for the associate’s time…and then for the attorney’s time!”

Years ago, a friend–a smart guy…a guy who’d been around the block…done business all over the world–engaged an attorney to help him structure his holdings to mitigate his global tax liability.

Similar story. My friend spent more than US$100,000…didn’t understand the structure he ended up with…didn’t want to ask more questions, because they led to more answers he didn’t understand and more billable hours…and, then, a few years later, found he was in violation of some French tax code he’d never heard of. Certainly, he didn’t mean to run afoul of the French tax authorities. And, even when presented with the facts, he didn’t understand exactly what he’d done that he shouldn’t have done.

In the end, he had no choice but to pay the resulting US$50,000 fine…and, then, to hope no further surprises awaited him down the line.

I joke now and then in these dispatches about how mind-numbingly complicated, as I like to say, this international tax and structure stuff can be.

It is. And it doesn’t have to be.

At first, when you’re starting out, making your first foreign real estate purchase or setting up your first offshore corporation, it’s intimidating. You don’t know what you don’t know. You fear you’ll end up like my friend, breaking some tax law you didn’t know existed.

I’ve been lucky on this front, twice. By trade, I’m an accountant. It wasn’t a big stretch for me, therefore, when Kathleen and I left the States together, to make it my business to understand the ins and outs of U.S. tax code as it relates to the non-resident American. After 15 years at this, I can now quote IRS rules, regs, form numbers, and exemptions by heart.

In addition, I’ve taken the time to research and to understand the relevant tax issues in every jurisdiction where we’ve invested money, done business, or held an asset.

It’s not so much that I enjoy this side-line. It’s that, when we left the States, I felt like I had no choice. It was either figure it out myself or pay some “expert” tens of thousands of dollars to figure it out for us.

My investment of time and energy has paid off. I’ve been able to save us considerable money over the past decade. More important, though, having done everything myself, I really understand how everything is structured. I’ve made all the decisions and choices myself (well, Kathleen has had input, too, of course). We’ve erred always on the side of disclosing and reporting even when we’re not certain it’s required…and paying the tax even when we’re not sure it’s due.

This way, we sleep better.

And, even within the context of our ultra-conservative approach, I have been able to control our overall tax burden. Using the foreign-earned income exemption and other straightforward exclusions, exemptions, and deductions, our overall net effective rate of tax is considerably less than it would be if we were full-time U.S. residents.

I’m not suggesting that you should pursue this same strategy. It’s taken me, again, 15 years to learn what I’ve learned and to develop the offshore infrastructure that I’ve developed. Even if you were inclined to do it all yourself, as I have, in the current global climate, you don’t have the time. You need to act now.

Lief Simon