While offshore investing via an offshore online trading account or through an account held by an offshore private bank is generally completely legal, the offshore investor should give consideration to the structure factoring proper tax compliance and legal tax avoidance. While confidentiality and privacy are extremely high with an offshore structure and investment account, privacy and confidentiality alone should not be the only consideration. Indeed, some countries impose strict measures regarding taxation of foreign investments in their attempt to keep their own economies growing (even if these may be horrible places for your money..... so much for looking out for the best interest of the citizens). While this may not be right, it is still a fact and one that should be taken very seriously.

Very few offshore services companies such as Sterling Offshore give proper consideration to tax compliance and legal tax avoidance when suggesting offshore investment structures. They generally tout the confidentiality and privacy aspects of offshore investment structures and the fact that discovery of the offshore assets would be incredibly difficult. While true in most cases and a benefit of offshore structures, this may be entirely unnecessary since there are legal means of achieving the same goal. Sterling Offshore prefers and highly suggests that our clients establish structures which meet the tax compliance rules of their home country allowing for worry free legal tax avoidance and increased compounded returns on investment.

While there are generally more loopholes allowing offshore companies to benefit from deferred taxation, the available tax deferral solutions for offshore investment are much fewer in number. That being said, tax compliance coupled with deferred or completed avoided taxes due is a possibility.

Legal Tax Avoidance

In countries such as the USA, nearly all tax compliant offshore investment strategies designed to reduce or defer taxation on gains involve the use of some sort of life insurance product along with an offshore LLC/IBC (and possibly a trust or foundation) set up as a family office. There are several options available depending on the tax bracket and goals of the client.

Life Insurance Annuities

Premiums relating to the purchase of life insurance annuities and variable universal life insurance annuities (VUL) are tax deductable in nearly every country including EU countries and the USA. The assets within the insurance product are then invested and allowed to grow tax free as well. Clients can generally access the funds held in the life insurance annuity without creating a current tax burdon through a loan. The structure will include an offshore company and possibly an offshore trust or foundation which purchases the VUL and hires the investment advisors. The offshore company then invests its assets and rolls the gains into premium payments of the VUL allowing them to go untaxed.

Since the goal here is to establish a legally sound structure that satisfies the tax authorities, this should be discussed with your professional accountant or tax advisor prior to establishing the offshore investment structure. Sterling Offshore is happy to work with you and your tax advisor to establish a proper tax compliant offshore investment structure allowing for legal tax avoidance.

This is all 100% reportable allowing everyone to sleep easy at night rather than relying on the "Hide and Hope" method chosen by so many for their offshore needs. The tax reporting for these structures is not always well known to domestic accounts, so Sterling Offshore can also recommend qualified tax advisors in countries where we have relationships (including the USA).

Example (US Family):

Step 1: Establishment of a Seychelles IBC with management services as the "Family Office". A Trust or Foundation may also be used for additional asset protection and succession planning. The family members would be the sole shareholders of the offshore company. A letter stating any preferences regarding such things as asset allocation, investment strategy, specific investment advisors, banks, etc. would be drafted by the family and submitted to the company managing the Family Office (Sterling Offshore).

Step 2: A bank and/or brokerage account is opened in the name of the offshore company.

Step 3: Funds are transferred into the account of the offshore company.

Step 4: The offshore company purchases a variable universal life insurance annuity (VUL) and hires an investment advisor to invest the premiums.

Step 5: The offshore company hires an investment advisor to invest the assets held by the offshore company representing the Family Office.

Step 6: All profits earned from investments of the Family Office company are rolled into premium payments of the VUL. This can be from 0$ to an unlimited number in most cases.

Since the profits of the offshore company are being used to pay insurance premiums these are not taxable. Likewise, gains from investments inside of a VUL are not taxable. The client fully reports all holdings of the offshore company, any signatory status on foreign bank accounts if applicable, etc and voila