Dateline: Hong Kong
Two persistent myths surrounding offshore strategies are that they are either illegal or that they are for the rich. As we frequently discuss, this is not the case, but old myths die hard.
The government-friendly, tax-loving western media certainly does nothing to dispel these myths in their reporting.
One point I try to make clear here is the idea that anyone can benefit from planting flags and using offshore strategies to increase their personal and financial freedom. While you may not need an offshore trust for a net worth of $10,000, you may have some kind of income that would benefit from tax reduction if you moved overseas.
I’ve written about strategies for the average Joe precisely because it’s not 1970 anymore. The concepts of “secret tax havens” and “numbered bank accounts” are gone; they’ve been replaced with a more transparent offshore system that prioritizes “show and tell” over “hide and seek”.
There is no doubt that some service providers make planting flags out to be harder than it is. Opening an offshore bank account isn’t that difficult, especially if you are willing to travel. The hard part isn’t actually opening an account, but knowing with which banks to start.
However, there are also myths in which people believe that getting a second passport or opening an offshore account is a little TOO easy. Let’s examine a few myths started by people who are a little too eager.
1. You can get a second passport without leaving the house
It’s true that one or two of the Caribbean economic citizenship programs will fly their due diligence officers to you for an additional fee. Other programs, such as the multi-million dollar program in Cyprus, require very short visits.
However, those looking to spend less than six figures should plan to spend at least a little time in the country they want citizenship from.
Countries like Panama – which offers the Friendly Nations Visa program and the ability to become a Panama citizen in roughly five years – have a technical requirement to spend one day per year in the country once you get permanent residence there.
That means you can fly to Panama, get your second residency, and then spend one day per year in the country to keep it active. However, people often hear this and think that acquiring Panama residency, let alone keeping it, requires little more than an hour-long layover.
In reality, getting residency or citizenship in a country requires you to go to the country, often twice or three times. In the best-case scenario, a visit can be anywhere from 1-2 weeks, but I am increasingly seeing requirements for applicants to stay 3-4 weeks in many countries.
Even if a country requires you to spend one day a year in the country, it may be worthwhile to spend a little more time, even if that means taking a two-week vacation there.
Just as governments in many countries have cracked down on visa runs, it is always a good idea to make an effort to do anything more than the bare minimum if you want to appeal for citizenship in the future.
If someone says it’s possible to become a resident or citizen of a country without visiting, run the other way.
2. Anything offshore should happen overnight
In the same vein as the idea of obtaining a second citizenship without actually going anywhere, some people believe that everything in the offshore world is fast.
It’s hard to blame them; jurisdictions like Chile have made proclamations announcing same-day company formation. Several Caribbean and African jurisdictions similarly process new company formations in anywhere from a few hours to 2-3 days.
This doesn’t necessarily mean setting up shop offshore is any faster than onshore; Delaware, for example, allows for super-fast expedited filings, and a growing number of onshore jurisdictions are following suit as they realize just how much competition there is.
Just because a country will approve your offshore company or trust in one day doesn’t mean that other due diligence work isn’t required. The company that takes one day to form might take one week to complete all of the paperwork and due diligence on.
When I speak with customers from this site, I try to stress everything that is involved in the process of planting a flag. Yes, it is possible to incorporate in one day some places, but that doesn’t mean you should; there are tax and reporting considerations that many people have to consider, for example.
Similarly, getting a second residency or passport takes time. I just spoke to a friend of mine who informed me that he got a client citizenship in Cyprus in a record 50 days. That’s quite a feat, even if it did come with a $3 million price tag.
Any offshore process involves government. Governments are typically slow. Getting residency, buying real estate, or even working with lawyers may not go quite as quickly as you’re used to, especially when dealing with folks in the Latin world.
3. Everything is cheaper offshore
It is possible to open an offshore trading account to buy stocks or trade forex. Some of these accounts far exceed the levels of service you’d find in the United States or Europe.
However, not all of these accounts are cheap. For example, US traders are often used to $4.95 equity trades and tiny spreads on forex. The US is the home to many discount brokerages that don’t always exist in places like the Cayman Islands, where broker-assisted trades are still the norm with some outfits.
If you want easy and cheap, you might be surprised to learn that onshore is your best bet. US banks are poorly capitalized and very restrictive toward transferring money outside of the Land of the Free, but there are plenty of free checking accounts from banks like Capital One.
Likewise, onshore banks are often easier to use despite their lack of flexibility and features. Sending an ACH transfer from my old US online savings account to my checking account was stupidly simple, whereas sending a wire from HSBC Hong Kong requires one to read an encyclopedia of disclaimers and instructions.
In the case of wire transfers, offshore banks are often cheaper; the same bank that charges $14 to send a wire from Hong Kong charges $40 from the United States. That said, the reason you bank in Hong Kong or anywhere else “offshore” is for the quality banks, flexibility, and service, not because of a $15 monthly maintenance fee.
4. You need a referral to open an offshore bank account
In some cases, a referral can be helpful when opening an account. In other cases, banks may require so much paperwork that paying someone to help ease the burden can be helpful. This is sometimes true when opening an IBC bank account or dealing with certain high-end banks.
However, there’s nothing that says you can’t walk into a bank in Canada and open an account with your passport and proof of address. I wrote the book on this; our Best Offshore Banks guide which outlines more than 50 specific banks that are friendly to people who want to open an account without any help.
For business accounts, a referral can often come in handy, especially if you have specific requirements for the type of bank you want. However, if you are just getting started, there are plenty of banks that won’t charge you a fee to bank with them.
5. You can believe everything you read on the internet
The biggest challenge facing the offshore “do-it-yourself” crowd is inaccurate information. There are two reasons for this: pure scams, and simply outdated information.
Online forums and even government websites are often out of date when listing certain requirements or costs. Other bloggers have said that companies they recommended in previous posts are no longer reliable. In the offshore world, things change and you have to adapt (hence the word “nomad”).
A few years ago, one of the top-ranking websites in Google for anything offshore was determined to be a giant scam. As a lifelong entrepreneur, I don’t use the word “scam” lightly; to me, a scam is taking someone’s money and running, never to be heard from again. And one of the most prominent companies online was doing just that.
Other scams include the “too good to be true” passport offers I mentioned above. One reason I decided to use my own name and plaster my picture on this site is so that readers would feel confident using our site.
Part of the reason I decided to build a team to help people achieve their specific goals was because I realized that the strategies that work for my specific situation won’t work for other peoples’ situations.
This site is a diary of my experiences as an entrepreneur and investor planting my own flags, but to merely rely on the internet without professional advice for implementation would be a bad idea.
The overall message here is that going offshore isn’t always the easiest or cheapest option. For sure there are times when you can save money, earn higher interest rates, or see greater returns by leaving your home country.
However, the idea that the offshore world is a panacea of solutions that are practically free and where things happen overnight is simply not true.
If you’d like help sorting out the best strategy for your personal situation, you can learn more here. I’ll be announcing a big initiative to help our readers plant their flags shortly as we move more and more in the direction of helping you take action.