Posted by jonathan on April 28th, 2009
Offshore and U.S. Brokerage account services by Jonathan Curshen
Filed under: offshore
Indeed, clients often ask us, “Is it true. Is it really possible to invest tax free with an offshore account”?
Yes, It is true. But there are some things you need to be aware of when contemplating your investment strategy.
For example, most people do not know that US brokerage accounts titled in the name of a foreign person or entity are exempt from capital gains. As a result, there is no “Tefra” or back-up with- holding on profitable stock trades. Clients of course are required to complete a W-8 form, stating it is a foreign account in order to take advantage of this (if the account is titled directly in the name of offshore structure or foreign client).
In these cases, many countries would with-hold income tax payments directly “at source” for their own residents or citizens, but allow foreigners (or a foreign entity such as a Foundation or Company) to enjoy bank account interest 100% tax-free. If an account is coded as “foreign”, it does not even get included in the reporting information the bank would send to the local government. So in essence, you have a tax-free bank account in a country not even considered to be a tax haven, (but for you as a foreigner, it is).
In reality, your offshore bank is really performing what is called “sub-accounting”, which means that they are “breaking down” the master-account and are issuing a monthly statement to you with your holdings and activities.
The only down side to some offshore banks or offshore brokers are the fees involved. In the past, anyone that has dealt with some of banks in the Bahamas or Europe can tell you that full service brokerage fees look like a good deal after getting a rate schedule from some of the offshore banks offering similar brokerage services. The good news is, that is starting to change, and there are some very good banks in both Panama and The Dominican Republic offering very very competitive fee schedules.
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