Trading FROM offshore

Discussion in 'Professional Trading' started by JS11374, Jan 14, 2002.

  1. todd960


    hope this helps explain a little better. You right though when you say one will need to trade through an IBC and pay themself a salary.
    Everyone loves a real homeowner's tax loophole.
    Under US tax law (i.e., Section §911 of the Internal Revenue Code) , an American taxpayer and his wife can exclude up to $76,000 each from their salary ($152,000 = total), provided they live offshore at least 330 days of every year. This is called the "Foreign Earned Income Exclusion", and is part of the Statutory Internal Revenue Code. This exclusion is an annual tax allowance under US tax law, but you have to live outside the US at least 330 days to qualify for it.

    The amount one can exclude increases to $80,000 for fiscal year 2,002. For 2001 the amount excludable is $78,000.

    Here's what my IRS 2,000 (1040) Booklet says on page 15 (Chapter 4): Source of Earned Income: "The source of the earned income is the place where you perform the services for which you receive the income. Foreign earned income is income you receive for performing "personal services in a foreign country. Where or how you are paid has no effect on the source of the income.

    For example, income you receive for work done in France is income from foreign source even if the income is paid directly to your bank account in the United States and your employer is located in New York City." - verbatim - IRS.

    For Example: Anguilla Real Estate broker company X received $1,000,000 in annual commissions in 2,002. John and Joan Dakota (now living in Nassau, Bahamas or Georgetown, Cayman Islands) are the owners of Anguilla Real Estate broker company X - a company that has no offices inside the US.

    John and Joan of Nassau could receive up to $160,000 in salary from the offshore IBC, as employees, and they would only have to file a IRS Form 2555 with their 1040 tax return.

    This "exclusion" is called the Foreign Earned Income Exclusion - and can be taken annually; but if you don't file Form 2555 with your 1040, you don't get the EXCLUSION!

    Anguilla Real Estate broker company X would owe no taxes on its $1,000,000 revenues, so long as it does not "do business inside the US". Anguilla has no income tax system. Furthermore, countries like Anguilla, Cayman and the Bahamas do not tax capital gains, dividends, royalties or interest. There is no estate tax duty in these places either, and no gift taxes.

    Furthermore, with a little tax planning, the corporate income accruing to the Anguilla company from "services performed outside the US" would not ordinarily be "Foreign Personal Holding Company Income" in the hands of the shareholders. Using a foreign trust to hold the shares of the foreign company from the very beginning can often help avoid some of the other pitfalls in the US Tax Code – i.e., that might apply to John and Joan Dakota (as shareholders of Anguilla company X).

    Incidentally, US taxpayers John and Joan Dakota (above) would owe taxes on their capital gains and interest income, as these incomes are not considered "Foreign Earned Income" under Code/Section §911. That's the only real downside to this "loophole".

    This might also be in interest to any one.

    . On December 6, 2001, the governments of the United States and Antigua and Barbuda signed an agreement for the exchange of information with respect to taxes. Specifically, the object and scope of the agreement targets each country's assistance to assure the accurate assessment and collection of taxes, to prevent fiscal fraud and evasion, and to develop improved information sources for tax matters. At hand for the signing were Treasury Secretary Paul O'Neill and Antiguan Prime Minister and Minister of Finance Lester Bird. In a Treasury News press release announcing the signing, Treasury Secretary Paul O'Neill made the following remarks at the signing:
    #51     Jan 28, 2002
  2. Babak


    trading from offshore means that you have a presence outside of your tax jurisdiction (whether legal or illegal). Usually an IBC structure is used to open an account in its name and then trading authority is given to whomever the board chooses.

    you may want to take a look at as a broker

    what you will discover is that because there are very few people/traders established offshore (demand) and because the bankers/brokers are quite posh (supply) the commission rates will scare your eyebrows off your face.

    sure you will not be paying any taxes on profits, but will you have any profits to speak of after fees?

    #52     Jan 28, 2002
  3. janko


    hey guys what if you have dual citizenship??? a us citizen and a foreign eastern europe citizen??? any ideas on that, how you could solve your tax issues? any thoughts comments are welcome. thnx
    #53     Jan 28, 2002
  4. todd960


    I agree completely. I've tried to find a offshore broker that has reasonable commissions for my futures trading, but their all way too high.
    I plan on moving from this very expensive state of Colorado to Nevada. At least theirs no state tax in Nevada.
    #54     Jan 28, 2002
  5. janko - dual citizenship doesn't free you from US taxes. You can take a foreign tax credit on your US return, but the IRS believes that all your income regardless of where earned is theirs - and they'll just grudgingly let you keep some of their money :)
    #55     Jan 28, 2002
  6. janko


    ok so what if i open the acct as a european citizen ok slovakia, where would i fall with the irs, would i just be a foreigner with a regualr brokerage act at IB and declare my taxes in the country of residence which would be slovakia?
    #56     Jan 28, 2002
  7. Funster


    The IRS does not recognise "dual nationaility". As far as it is concerned your worldwide income as a US resident is reportable to them.

    The UK, where I live, does allow for this, and indeed allows an unreported income abroad, so long as you meet certain criteria. However this is getting tighter and tighter. I fear that as with many other things, the tax law in the USA simply sets the standards that other countries eventually follow.
    #57     Jan 29, 2002
  8. tntneo

    tntneo Moderator

    in that case the answer is yes.
    however, without proper identification of non resident, the broker may decide to use the backup withholding rule and keep 30% of profits, dividends, etc.. for taxes.
    some do and it is wrong. because IF there is a tax treaty between the country, income from a brokerage (capital gains) are exempt of US tax IF you can proove you are not US citizen and you don't reside in US. The income is considered not related to biz activities in US.
    IB follows this rule as far as I know.

    #58     Jan 29, 2002
  9. Funster


    I think that the witholding rule only applies to dividends.

    If you are trading futures you certainly should not be affected at all as a foreign resident, so I understand.
    #59     Jan 29, 2002
  10. PatG


    #60     Jan 29, 2002