Offshore Inc. for tax-avoidance trading?

Discussion in 'Taxes and Accounting' started by malaka56, Oct 5, 2005.

  1. malaka56


    Hi, I am completely new to trading, so this might be a dumb question, but I'll ask it anyway.
    Do any of you use legal structures based in other countries to avoid US taxes on your trading?
    A lot of business based in Bahamas, Nauru, etc, get substantial gains with tax avoidance through measures like this.
    I'm wondering how viable this is for trading. I imagine you coud setup an LLC or INC offshore, open bank accounts, transfer assets and keep them in USD, and then trade.
    Would you be able to use US based brokers and still avoid taxes?
    I have no idea how this would work, or it would even be beneficial for trading, but I imagine it would be. Any insight would be appreciated. Thanks.
  2. I dont know much about tax law but i assume if you are trading US markets, you wont be able to avoid taxes.
  3. If you're an American citizen then what you described above is illegal. Only you can make the choice whether you want to do it or not.

    If you are an American citizen then your best bet is to set up an Offshore Fund or a Master Feeder and then make sure your Management/Advisory entity takes full advantage of all the benefits therein. But be prepared to pay up for all related services...$$big time$$. A minimum of about $20mil AUM allows this model to work.....and believe me when I say “minimum.”

    If you're not an American citizen then you've got no worries.
  4. my question is why would you go with the headache, and the sleepless nites. You already have putting money to work as a worry why not just pay, and have good nite of sleep.

  5. Well u can open a charles schawb account in HK and trade using the web i dont think u will have to pay any taxes as u r just trading the stock hk is a free port but u can check their web site :)
  6. malaka56


    Yeah, the account in HK is something like what I was thinking about, except it wouldnt by _MY_ account. All of the assets would belong to the Offshore company, of which I would be the only employee and director. I think this wouldnt be illegal accually, unless I did not pay taxes on the money coming into the US, which could be a small amount allocated to my "salary". The rest of which would sit on an offshore account, under ownership of the offshore company, not being subject to any US tax laws or auditing - only my "income" i bring into the US can be audited. I would technically be an employee of a foreign company.
    Obviously if i brought the money into the US, tax would have to be paid, but better to pay corporate tax in delaware/nevada i think, and I could spend the money in other countries with no tax issues at all.
    I am not going to do this, seeing as how I am not a trader, but I'm interested in how it works with trading as opposed to a "regular" business.
  7. You got to be careful with this though.
    In many Western countries, the tax laws are such that if they can establish that the trades are effectuated/managed from their territory, they will equate you with a business run FROM THEIR TERRITORY and tax you according to local rates.
    Of course, this will require proof on their part, but tax intelligence is very effectively shared between international civil servants and brokers (having their arms twisted by the IRS). Very expensive and nasty law suits may be required in attempting to wiggle yourself out of this.
    The real solution is to be (1) No US citizen; (2) to actually RESIDE and RUN your trades from HK. Simply having a corporate entity setup is not sufficient.
  8. mhashe


    if you are a US resident, you're income will still be taxed regardless of where you reside.

    As I understand it, the way to set this up is to look for the desired tax haven ( Note that some tax havens have residency requirements for the trust to qualify for preferential tax treatment.) and set up an offshore trust there with a reputable ( and very expensive ) foreign law firm as the trustee where you are given the sole discretion to appropriate the funds. Once you have the trust set-up you need to structure a strategy where you are paid a minimum salary (lowest tax bracket) for your services ( you have personal expenses) with the trust purchasing/paying for the rest of your assets. This should in no way be construed as legal advice. please consult with your attorney for the appropriate legal advice.
  9. Good point. I heard things have gotten harder since the Patriot Act. I even read something a yr ago that some of the places where people had none of their business told to the IRS had changed since they were told that they wouldnt be able to do business in or with the US unless they gave up info.

    I'm not telling you not to do it, but be careful cause you dont want to drop the ball on this one. Good trading......................

  10. tomcole


    I'll never understand why anyone asks sophisticated tax or legal questions on a chat board. Do you really intend to rely on any of this advice?
    #10     Oct 6, 2005