I believe this is true. However, a US citizen would pay additional tax once proceeds are repatriated into USA. This is why so many US multinationals warehouse profits off shore inpurpituity.
Uggg, why do people exert so much energy thinking up illegal, semi-legal or hare-brained schemes trying to dance around paying taxes? Of course if traders lose, they expect to deduct everything imaginable on their taxes. When they win, they try to figure out how to move to a tropical island that uses coconuts for currency.
no, actually that isn't true. there are laws limiting us citizen ownership in foreign corporations before the corp is considered liable for US taxes, regardless of what tax free jurisdiction it's headquartered in. look up CFC and PFIC rules for more info.
If that's true, then it's a smart tax agency policy. Think about how much in losses in forex would be used to offset actual income vs. the very limited amount of gains that is not taxed. All tax agencies should do this.
It is a bit worse than that. Controlled Foreign Corporations and other similar entities have the numbers "flow through" to the US citizen whether they are distributed or not. Being classified as one is a nightmar to be avoided AT ALL COST. There are some real tax advantages to be had by using offshore jurisdictions and also by living abroad but this stuff takes some study first -- 10 or 12 hours -- if you are literate and then you seek proffesional advice. Trying to get this type of info on ET is like going to a chat room if you have brain cancer.
I am certainly no tax expert, but I simply cannot imagine a US law that would circumscribe my inalienable right to engage in legitimate commerce in forgien lands. What if an American citizen ethier froms a Corp. or invests in a corp in Estonia-a low to no tax country-and does so without regard to the tax consequenses down the road. Would the IRS and the US courts rule that he or she disinvest in this business because of the heavy hand of US tax law? Simply unimagineable.
US law doesn't prevent you from enaging in commerce, it just makes sure someone somewhere is taxing you if you do. WRT to your example: it would be entirely dependent on the type of tax treaty that the US has with Estonia. traderum's comment that you were replying to, assumed a tax treaty with another country, but that is not always the case. in jurisdictions where there is no tax treaty, or where there are no local taxes due, and the US controlled corporation fails to pay taxes to the US, criminal tax evasion will more than likely follow. while the IRS may have difficulty seizing foreign assets in some countries, they will have little trouble incarcerating the individual if they do not make good on what's owed. the limitation i referred to was not a direct limitation in ownership, but rather an indirect one. whereby, if a US citizen controls too much of the foreign corporation, the corporation can suffer very negative tax consequences payable to the US. again, tax treaties and CFC/PFIC rules here should be referred to for guidance.
There is one tax haven that I don't believe has been covered in this thread...and that is the US Virgin Islands. As long as you employ a certain number of native Islanders full time, you will enjoy a US Tax rate of 5%. It will cost you about $500,000 in employee costs and the employed Islanders can do anything (driver, maid, chef). You must stay on the island for 6 months and 1 day each year, but you can be stateside for over 4 months each year as well. From people that have done it, given high cost of living and so on, you need about 1.5 million of income per year to make it worthwhile. However, you could pool the employee cost under a corporate structure and reduce your individual net impact dramatically.