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Is a Holistic or Technical Approach for Going Offshore Right for You?
Is a Holistic or Technical Approach for Going Offshore Right for You?
The United States tax system operates differently than almost every other tax system across the globe. While some countries do not have any individual personal income tax, that is not the norm. Rather, most countries utilize a Residence-Based Taxation (RBT) model. That means that to be subject to taxes on global income in a particular country, the person has to reside in the country – and usually for at least six months in the year. This is different than the United States tax system, which operates on a Citizen-Based Taxation Model (CBT) – noting, that it is not limited to just citizens, but it applies to all US persons, which typically includes US Citizens, Lawful Permanent Residents, and foreign nationals who meet the Substantial Presence Test. If you are considering going offshore to escape the US tax system, there are a few important takeaways to keep in mind when developing a strategy.
What is the Best Approach for Going Offshore?
Some companies try to sell unsuspecting US citizens on the idea that by simply utilizing a warm and fuzzy approach and throwing caution to the wind, they can simply relocate out of the United States, become a citizen of the world — and not have to pay any tax in any jurisdiction for any income they earn…ever. One way to compare this concept of the holistic approach is when considering different types of medicine. There are those who like holistic medicine and those who want to go see their regular doctor. When a person first attempts holistic medicine, and it does not work, they tend to go back to their primary physician. The problem with using the holistic approach with going offshore is that the IRS typically only. gives you one bite at the Apple.
Transparent Tax and Legal Planning is Crucial in Going Offshore
While using a technical approach versus a holistic approach may not sound as sexy — are you looking for a sexy approach to keeping more of your money — or are you looking to reduce or eliminate US tax liability when going offshore, and starting a new? Because quite frankly, finding a local real estate agent, physician, or accountant after expatriating it’s not that big a deal — at all. Properly escaping the US tax system is what you are after — so your primary goal of avoiding US Tax is (usually) the key issue on why you are seeking to go offshore in the first place.
Expatriating is Complex
Many times, taxpayers will approach us when they are seeking to expatriate from the United States in order to create a new tax ecosystem for themselves and their businesses. They are concerned because other non-tax, non-legal professionals on selling them on “secret” high-cost approaches founded on the notion that the Taxpayer should trust these people and their multi-million dollar net-worth based on the idea of simply throwing caution and proper transparent planning to the wind. It is very important that taxpayers dot their i’s and cross their t’s when leaving the US tax system. The United States government has a very long reach that they can use in order to swoop in on Taxpayers who have not properly expatriated. Likewise, oftentimes it is an experienced tax and legal firm that can provide the most comprehensive overall approach
5 Important Offshore Considerations
Tax Analysis
Before going offshore, it is important for taxpayers to fully evaluate and appreciate their tax situation so that when it is time to expatriate and go offshore, they are ready to commit to the process.
Legal Wranglings
Individual Expatriation and Business Structuring are complex exercises. Depending on the status of the US person when they expatriate — along with the different requirements for forming foreign trusts and other entities in different countries, will impact their overall plan. It is important to get your ducks in a row before expatriating.
Real Estate and Rentals
Depending on where you end up residing, they will be different rules and requirements. In some countries, there may be significant security deposits (6-figure) required when renting a property. Likewise, other countries may require that you are actually a citizen of that country in order to obtain real estate.
Physicians and Health Care
When considering relocating to another country, it is important to understand how the healthcare system works in that country. Some countries will offer international insurance and others do not. In addition, you may want to continue returning to the United States after going offshore – so you should consider whether your Health care offers insurance to non-residents.
Education
In some countries, education is offered for free to citizens and residents — while in other countries, it requires the person to be a citizen of that country. Therefore, it is important to work through the semantics before relocating if your intended goal is to continue your education or if you have children who will be attending university.
About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure and expatriation.
Contact our firm today for assistance.