Why Offshore Investments Have Real Benefits
This Is The Real Benefit Of Going Offshore
Traveling in the United States over the holidays I was reminded, as I always am, that that country is one of the easiest places in the world to live and spend time. You might wonder, therefore, understandably: Why do anything offshore in the first place? Easier, surely, just to stay put.
Overregulation, overreach, invasions of privacy, and poor government stewardship of the people’s money are four reasons to consider voting with your feet and your finances and relocating yourself and your assets somewhere else right now.
However, I’d say that going offshore is better approached as an opportunity rather than an escape. Or, put another way, this isn’t a political decision. It’s a practical one.
In that context, what’s the real advantage of the Five Flags ideas I report on?
Diversification. It’s the key to success in all things, from personal happiness to a healthy portfolio. And you don’t have to go physically offshore, not immediately and maybe not ever, to reap the benefits.
That said, having a residence permit that allows you to stay in another country indefinitely, should you decide you’d like to, can be a good idea even if you have no intention right now of moving yourself anywhere. A backup residency, as I think of it, keeps your options open down the line. Many countries allow you to obtain legal residency without having to be resident full time or even most of the time to maintain your residency status.
Furthermore, setting up residency in another country now can allow you to start the clock ticking toward a second citizenship down the road, and a second citizenship has become a more practical and urgent requirement than it’s ever been. Not only does it open doors and create opportunities (an EU passport, for example, gives you the right to work and live in any of the 28 member states, and a Panama passport allows you to work in protected professions and to own protected businesses—retail, for example—in that country), as it always has, but now it also provides backup in the wake of the recently passed FAST Act allowing the IRS to revoke your passport if that agency decides you owe it US$50,000 or more.
Those are the benefits of diversification of your life and lifestyle…
What About The Benefits Of Diversifying Your Assets?
Moving part or all of your business, if you have one, offshore can make it possible to defer taxes, helping your business to grow faster. It could also mean less regulation. It definitely would allow you to protect the business from the most litigious population on earth (that is, Americans).
Your nonbusiness assets, including your IRA or equivalent, can be protected offshore, as well. Moving some or all of your assets offshore accomplishes two things. The first is asset protection (with the help of holding companies and/or trusts). The second benefit of taking nonbusiness assets offshore may not seem as important but is. I’m thinking of the broader range of investments you then have access to. Your offshore investment options through an onshore broker are limited to those companies willing to go through all the SEC hoops to get listed on a U.S. market. Outside the States, you have tens of thousands more mutual fund and stock options.
My wife tells me that this event is filling faster than any event she’s hosted. I recommend you reserve your place now. I’ll meet you there.
Lief Simon
Mailbag
“Lief, there has been extensive discussion on the expat forums about the new income tax policy in Colombia. The consensus seems to be that the 33% bracket for a relatively modest worldwide income and lack of a tax treaty/deduction are deal-breakers for investors who were planning to live there longer than 183 days per year. What is your recommendation for those of us who were considering residency in Colombia?
“Thank you for all of your advice.”
K.K.
Resident in Colombia, you hit the 33% tax bracket at about US$37,000 of income at the current exchange rate. That’s before applying any deductions, exemptions, or exclusion.
If you’re considering moving to the country as a retiree, taxes shouldn’t be a concern. Pension income is, for the most part, tax-exempt.
If you’re working, 25% of your income is tax-exempt.
Note that the capital gains tax rate is only 10%.
Gains on shares of Colombian companies are exempt from tax if you own less than 10% of the company.
Finally, the existence or non-existence of a tax treaty is irrelevant. It doesn’t change anything for an individual American. Even without a tax treaty, an American paying taxes in Colombia can take a credit for those payments on his U.S. taxes, thereby avoiding double taxation on that income.
