How To Play Offshore Legally

One of the funny things about discussing offshore investment is that we forget a very basic fact: not ALL Americans who invest offshore are up to shenanigans.  Some U.S. citizens (and foreign nationals who are U.S. tax residents and, accordingly,  taxable worldwide) in fact, make a great business of offshore investing…and the IRS doesn't blink an eye.

I had an interesting chat with Fernando today regarding this and, as usual, his explanation was very enlightening.. (Fernando Reategui, for those of you who don't know, is the Managing Director of Private Client Insurance Advisors, LLC, my business colleague, office partner, and very dear friend.)  I am currently looking at innovative tax planning structures for some high net worth individuals who have come my way, some of them via immigration, some of them via other channels.  I had long ago come to the semi-conclusion that except for the additional "bulletproofing" provided by using an offshore trust to insulate U.S. taxpayers from litigation and claims, it was pretty much impossible to legally do business offshore, comply with U.S. tax laws, and still make a buck.  Not worth the hassle, or so I thought.

Turns out this isn't so. Since the subject is pretty complicated, I'll give you the two key bullet points which, to me, were the most illuminating:

-A U.S. taxpayer may want to go offshore with his or her investments for the most basic of reasons: investment expertise.  Fernando cited soveriegn bonds as an example: most U.S. investors do not have bonds issued by sovereign nations anywhere in their portfolio, and it is pretty much impossible to find a U.S. investment advisor with meaningful expertise in this area.  A U.S. investor interested in these vehicles would do far batter to channel his investments via an offshore advisor who DOES know this product.  The same logic applies to a number of other securities which are not traded in volume in the U.S.

-Going offshore doesn't necessarily mean going too far: consider Puerto Rico.  Did you know (I certainly didn't) that investing through a Puerto Rican agent who is dealing with foreign securities does NOT require the filing of an FBAR?  Turns out Puerto Rico is exempted.  (Before you scoff and say "well, what's the point of Puerto Rico, that's really the U.S., think again: having lived in the U.S. Virgin Islands and having had foreign clients with a lot of activity in the BVI's, I can tell you that Puerto Rican investment managers are key players in managing traditional tax haven investments in the Caribbean.  They may be in Puerto Rico but their investment management is much more globalized than that of most U.S. brokerages.)

Fernando works with this information daily as he develops tax solutions for high net worth inviduals using everything from trusts to complex private placement insurance structures.  If you or a client is looking to diversify their portfolio or trust corpus and interested in global markets yet very wary of stepping on IRS toes, drop me an email.