Protecting Your Assets Offshore

Someone recently told me about a scam not uncommonly perpetrated in Panama.

In Panama, when someone files a lawsuit against you, he can have your assets or at least part of your assets frozen while the suit is being argued to protect against you moving them out of the country before the case is settled.

The scam I heard about goes like this:

Some low-life finds out you have a significant amount of money sitting in a bank in Panama in your own name and files a frivolous lawsuit against you…typically a libel suit as these are typically dragged out in court. The low-life then comes to you to settle, knowing you’ll be open to settling quickly so that you can get your assets un-frozen.

This, it was explained to me, helps to explain why so many Panamanians with money keep that money in corporations and foundations. Much harder to sue a foundation for libel than an individual person.

This cautionary Panama tale makes a point. Many of us think about diversifying offshore to protect our assets from frivolous lawsuits in our home countries. However, that alone isn’t necessarily asset protection. A successful asset protection strategy not only moves assets offshore; it moves them offshore while housing them in the right structure.

Some people hold assets in their own name simply because they don’t know any better. Others do it to save on the cost of an entity. If you’re talking about a small amount of money, then not using a structure to hold it when you move it offshore may not be a big deal. However, the more you have, the more it makes sense to invest in the cost of a structure intended to protect it.

Unfortunately, no single structure can be suggested as the solution.

A reader wrote in this week to ask which country’s corporation I’d recommend for setting up an investment account overseas. That’s a loaded question. The answer depends on many factors.

First, are you a U.S. person? If you are, then it’s not a corporation but an LLC you want for the purpose of holding passive investments. Using an offshore corporation to hold significant passive income as a percentage of total income for the corporation has negative tax implications for a U.S. person.

On the other hand, if you’re a non-U.S. person, a corporation could be a fine choice for holding passive investments, depending on where you hold citizenship and where you reside. You should check with a tax expert in your home jurisdiction.

The next part of the decision tree has to do with jurisdiction. An LLC is a common law entity, so, if it’s an LLC you want, you’re looking at English-speaking countries. This can be an advantage, as it eliminates the language obstacle. Language set aside, you’re comparing jurisdictions based on cost and level of protection. Costs shouldn’t vary much from country to country but can vary a lot from one service provider to another. A few thousand dollars should get you set up; annual fees should amount to US$600 to US$800 a year.

An LLC is a first layer of protection. Depending on the investments you’re looking to house, you could put in place a main LLC that could then set up other sub-LLCs for specific investments. That’s generally not necessary, though, even though many offshore service providers will tell you it’s a must. It’s not a must, but it is more business for the service provider.

The other layer of protection to consider is a trust or a foundation. For U.S. persons, a foreign trust acts as both a layer of asset protection and an estate-planning tool. Setting up a trust can be expensive, depending on how complicated your situation and the service provider. You could start with an LLC, which brings you a lower-cost layer of asset protection, and roll the LLC into a trust at a later time.

The key thing, I believe, is to keep your structure strategy as simple as possible while still ensuring that you are accomplishing what you’re trying to accomplish. While it’s possible just to go online and set up whatever offshore structures you might have in mind over the internet, I don’t recommend it. Professional advice on this score doesn’t always come cheap, but I recommend it. Speak with a professional before you start setting up random entities.

You don’t want to be like one client I spoke with recently. This woman took a trip to Panama years ago and, while there, set up a corporation because everyone she spoke with said she should. Note that “everyone” did not include an asset-protection professional.

Five years later, this woman still hadn’t used the corporation for anything. Meantime, the cost of setting it up and maintaining the thing to that point totaled about US$5,000.

As I mentioned, every Panamanian with money has a corporation (or foundation) where he stores his liquid wealth to protect against a scam artist filing a frivolous lawsuit against him. However, this client wasn’t living in Panama and wasn’t opening up a bank account in Panama. She didn’t need a Panama corporation, despite what “everyone” told her.

Lief Simon

“Lief, in a recent article, you wrote:

“‘You don’t have to be physically present year-round in Belize to qualify for permanent residency and to take advantage of the tax benefits of that status. Come to visit for as few as four weeks a year, and you’re good.’

“At the Belize conference I just attended, it was stated that permanent residency requires that you be present in the country for one year, with an absence of no more than two weeks, and then your permanent residency request can begin. Please clear up this discrepancy for those who need accurate information on Belize’s residency requirements.”

I.Z.

The quote you reference has to do with Belize’s QRP program, which is not the same as the country’s standard permanent residency visa. These are the two general options for establishing residency in Belize, and they’re very different.

Belize is one of the easiest places in the world to establish legal residency. You can simply show up, enter the country as a tourist, and renew your tourist visa every 30 days for a year at a cost of something like US$50 per month for the first six months and double that for the next six months. It’s that simple. No investment or minimum monthly income required.

However, as was discussed at the conference last week, going this route, you can’t leave the country except for an emergency and not for longer than two weeks.

That said, once you receive your permanent residency this way, you can come and go from Belize more or less as you like (though you do need to be in the country some reasonable amount of time each year).

The QRP program, on the other hand, only ever requires you to spend a month a year in the country, but you’re required to transfer US$24,000 a year to Belize to qualify.