The importance of having an offshore story

Merely going offshore “to save on taxes” is not the best strategy. The good news is there are plenty of reasons to “go where you’re treated best”.

Dateline: Port Vila, Vanuatu

“Berlin will exploit Brexit. These companies need to be at the heart of Europe.”

So read the pages of the “Foreign Direct Investment” magazine I was reading while waiting in the headquarters of Pacific Private Bank here in Vanuatu.

I’m visiting the bank and meeting with a number of experts here in Vanuatu this week, interested to get a feel for the opportunities here. And while I’m waiting, I geek out on international investment magazines rather than sitting on the beach like a normal person.

Either way, while many expats here are cautiously optimistic, there is a looming problem in Vanuatu; one not dissimilar to the problem in the United Kingdom right now.

Quite frankly, the cards are stacked against both of them in one of their biggest sectors. Allow me to explain.

Pacific Private Bank has been in business for twenty years, serving as a remote outpost to park money free from taxes and the risks associated with insolvent banks in the west. Today, the bank still retains 100% of depositors’ cash on hand in a country that isn’t quite sure how to get setup to share its customer’s tax information with other countries.

However, I have frequently expressed my feelings that “onshore is the new offshore”. For non-US citizens, Vanuatu is still an OK place for a “Plan B” bank. However, regardless of how well Pacific Private Bank or other offshore banks may be managed, the deck is stacked against banks in Vanuatu in the long-term as larger countries like Australia apply pressure on them.

The old school tax havens are dying as a result of increased tax enforcement from big countries desperate to raise revenue.

As my magazine explains, Britain is in much the same position. After voting yes to Brexit, many Brits asked themselves if their lives would remain the same. Now that Brexit is underway, anyone holding a British passport will soon lose privileges such as Freedom of Movement in the European Union. Travel privileges are up in the air. The British pound has already taken a beating, wiping out vast sums of wealth among Brits.

One day most of the United Kingdom believe it would survive a vote to leave the European Union. The next day, they woke up to find a bite taken out of their global wealth and their future uncertain.

Meanwhile, the UK stands to lose businesses in the wake of Brexit, from banks moving to Frankfurt and Paris to tech companies moving to Dublin and the aforementioned Berlin.

While I won’t disparage British voters for getting out from under the thumb of Brussels, Brexit will no doubt limit the options of British citizens.

This is what “going where you’re treated best” is all about: being prepared, no matter what happens. As much as everyone says “we never say it coming, I believe the writing was on the wall”.

Today’s trends are clear…

The world is becoming increasingly nationalistic.

Banking secrecy and corporate secrecy is a relic of the past.

“Show and tell” has replaced “hide and seek” (and was always the law to begin with).

The world is becoming more transparent, and in odd sense, increasingly insular.

That doesn’t mean that you still can’t pay far less in taxes, or even pay absolutely zero. For the time being, places like here in Vanuatu remain tax havens offering paper residency to those willing to leave their home country.

This does, however, require some reading of the tea leaves.

Most people thought Brexit would fail because “that sort of thing would never happen”. They said it about Brexit, about Donald Trump, about the market crash of 2009, about banks failing, and about countless other events that actually DID happen.

It’s now clear that the stuff we thought “could never happen” clearly CAN happen. Anyone who isn’t prepared is merely choosing to be ignorant.

Imagine, for example, if the many Brits who spent much of their year sunning their buns in the south of Spain had taken the time to become residents and work toward a second passport. Those who did the work in advance could be European Union citizens now, rather than desperately searching sites like this for “quick and cheap EU passports”.

Anyone who has done even basic research knows that offshore companies in tax havens like Vanuatu have long fallen out of favor as ideal business setups. Now, banking in tax havens is beginning to fall out of favor.

The average man on the street might think that the death of banking on tiny islands in the middle of the ocean would mean the end of legal tax savings, just as he might think the rising price of economic citizenship programs means the average business owner can’t get an affordable second passport.

The average man would be wrong. Again, it’s still possible to reduce taxes, move a business offshore, and increase your freedom with affordable “Plan B” citizenships.

However, the rules and the processes have changed. If you’re relying on outdated information from blogs written five years ago, or what your friend did ten years ago, your offshore plans will likely not end well.

The “nomad” part of Nomad Capitalist means accepting change. It would be unreasonable to expect that the same bank would serve you for your entire life, whether you live and die in the United States, or whether you lead a more International life.

Each year, I get together with a small number of folks in my inner circle to share information on the latest trends, from which banks are trending to which ones are failing. This year, for example, we discussed the slow death of offshore banking in Latvia, while discussing replacement banks in parts of southern and eastern Europe and Asia.

One trend that I do see happening as compliance heats up around the world is the decline of European Union citizenship. In fact, I see many of the hassles of US citizenship applying to European citizens in the future. It may not happen tomorrow, but in the mid-term, having a “Tier A” passport could be a liability for more than just Americans.

The so-called “wealthy” countries of the world are largely broke and need to raise revenue in any way they can. Rather than making tough political changes, they will simply raise revenue through wealth taxes and chasing down the “traitors” who move overseas. It’s quite possible, for instance, that another Tier A passport country will institute citizenship-based taxation in our lifetimes.

These trends are visible to anyone who follows this stuff as I do, and as the folks here in Vanuatu do.

There are still great opportunities here in Vanuatu for the right people, from banking to second residency to specific investment projects I’m exploring.

However, the playbook has changed.

On the positive side, citizenships like Vanuatu’s are increasing in value, with more and more countries getting visa-free access to Europe and elsewhere. Meanwhile, new zero tax and low-tax onshore havens are opening up to entrepreneurs and investors.

Your offshore plan must have room for change, and room for growth. Today’s London may be tomorrow’s Berlin. I try to plan ten years in advance to not only give myself as many opportunities as possible, but to limit downside and protect myself from risk.

Having an economic citizenship from Dominica or Antigua can be your ticket to renounce US citizenship and remove the IRS from your life, but having an economic citizenship alone is probably not the best long-term plan as nationalism grows and the pressure to pay tax grows.

What I’ve found is that your offshore plan doesn’t just need a strategy; it needs a STORY. A story of who you are, what you do, and why you are doing it. The old store of banking in Vanuatu, having a business in the BVI, and becoming St. Kittsian to leave the United States is one that worked in the past, but won’t work much longer.

You can stack together a bunch of shiny objects, but eventually you’ll find that most of your time is being spent shoving square pegs into round holes.

Each step of your offshore plan should not only work together as part of a cohesive story, but should be created with future trends in mind. By seeing where the world is going, you can craft a plan and a story that will serve you long into the future.

To do that, you have to let go of what used to work, and embrace what is working today.

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Andrew Henderson

Andrew Henderson

Andrew has been internationalizing since 2008, and has learned what works and what doesn't work when it comes to reducing taxes, increasing personal freedom, and creating wealth. Click here to work with him personally.
Andrew Henderson

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