Dateline: Tbilisi, Georgia
I don’t often comment on news stories, and even more rarely so quickly, precisely because I’m not a news reporter. I study long-term trends, whereas the news comes and goes with every 24-hour news cycle.
One of those trends is that the world is shifting from a zero tax system. Another is that anonymity is increasingly looked down upon and attacked. Anonymous Swiss bank accounts were possible in my lifetime. Now every country in the world has banded together to stop them. And now something as basic as anonymous gold storage is possible in a grand total of one country worldwide.
Another trend is that bearer shares are now effectively prohibited in every country on earth. The next thing that will happen is that no “first world” bank will take offshore companies in places like the BVI; it’s already started. And then low-price citizenship by investment passports will begin to be rejected, as will others like South Africa’s where corruption is rampant.
Every once in a while, these long-term trends turn into big news stories.
And by now you probably know which story I’m talking about. The news media is having a heyday with the biggest data leak in history: the Panama Papers.
If you don’t already know, the Panama Papers are the 11.5 million files that were leaked from the database of Mossack Fonseca, the world’s fourth largest offshore law firm, based out of Panama with franchises throughout the world.
The leak came from an anonymous source who turned the documents over to the German newspaper Süddeutsche Zeitung, which in turn chose to share them with the International Consortium of Investigative Journalists (ICIJ).
The ICIJ has since shared the information with other news agencies and made their findings public as of Sunday, April 3rd, 2016.
Among their findings are the offshore dealings of 215,000 offshore shell companies and 14,153 clients, including 33 individuals or companies blacklisted by the U.S. government and 140 politicians and officials from over 50 different countries.
While there are claims that the firm has facilitated illegal activity — from the conflict in Syria to bribery, arms deals, tax evasion, financial fraud and drug and human trafficking — the majority of the people revealed in the documents are in compliance with the law.
For these people, the data leak is an encroachment on their privacy, but not an indictment.
What the Panama Papers should mean to you
If I’m being perfectly honest, if your name isn’t in the Panama Papers, they should mean very little to you. They don’t effect you. Worrying about these issues simply for the sake of worrying or getting angry won’t do much good… the trends are already in place.
This story will come and go.
A few politicians may fall. They’ll be replaced with new corrupt politicians. This one incident will not effect you, in that it will inspire significant legislation that wasn’t already on the table. Maybe it will inspire some new mini-FATCA in some country, but it will only be the excuse, and if it didn’t already exist, it would happen later with a different excuse.
The reality is that offshore tax havens can be used for illegal activity; and if you want to live an offshore lifestyle, it’s up to you to do things right.
We often talk here at Nomad Capitalist about how to avoid such offshore scams and activity. In fact, when we discussed the importance of staying off the beaten path to avoid scams, I specifically pointed to Panama as one of the places that is well known for their offshore services and, therefore, more susceptible to scams and errors simply because of the large number of people who seek out their services.
It’s also another reason why I recently spoke about avoiding “easy” solutions and knowing exactly what you want when you decide to pursue an offshore company, foreign bank account, or second residency.
Knowing what you want and why is key to doing things right. We only do things the legal way at Nomad Capitalist and knowing your intent is what enables both of us to do so
Focus on offshore strategies, not as a way to play hide and seek, but to improve your life in a transparent way. Report your offshore companies. Report your bank accounts if required. Focus on improving your life to achieve your end goals rather than the latest conspiracy or fad.
Now, this blog is not a news source, so I want to get past the fluff that has been reported in the news and focus on more substantial points.
Understanding the offshore industry
One of the statements from Mossack Fonseca actually made an important point, and that is that the offshore industry is “not particularly well understood by the public.” Many of the reports covering the Panama Papers have used the words “tax haven” as if the simple fact that a country has lower taxes were a crime.
One article even referred to them as “secretive offshore tax regimes” … Maybe it’s just me, but they’re really not much of a secret.
Now, secrecy aside, there are many legitimate reasons for using offshore structures, all of which we frequently discuss here at Nomad Capitalist.
Whether it’s to anonymously hold property and bank accounts, ensure asset protection, diversify investments or arrange an estate, there are thousands of law-abiding individuals who seek out services offered on an international scale that are 100% legal.
The news media isn’t too keen on revealing that little fact.
One such service is the formation of an offshore company. As long as you follow the laws prescribed by the country you live in, or of which you are a citizen, there is nothing illegal about setting up an offshore company.
In fact, there are several legitimate benefits to having an offshore company that I have discussed before, but let’s review three of them here.
1. Asset Protection
The laws of the country where your company is based are the laws that establish how your money is protected. So, if you live in the United States, for example, where frivolous (but expensive) lawsuits are the norm, moving your business overseas will make it harder for people to sue you because there are higher requirements for litigation.
Another reason is that it prevents other parties from just coming in and grabbing your money. It’s much more difficult to take your assets if they’re sitting in a place like St. Kitts and Nevis or Singapore. Offshoring your business assets puts up an extra wall for people who want to come in and grab the money you have worked so hard to earn.
2. Tax Savings
People want to save money on taxes. It’s the truth. There is a myth, though, that claims that you can live in your home country where there are high taxes and merely move your plumbing business overseas to an offshore company and pay no tax.
That’s not true.
However, when structured properly, you can cut your tax rates dramatically. In some cases you can cut them to zero, and in other cases you can improve the tax deductibility. For example, you can take more expenses as tax deductions for a company in Hong Kong than for a company set up where you live.
Especially for US citizens who live overseas, it can be easier to save money on taxes by setting up an offshore company. In fact, the average US citizen who makes over $100,000 a year in an offshore company can legally save $15,000 just by incorporating offshore.
3. Image Purposes
The final reason is one of convenience. Reality often dictates that it is easier to do business with people in Asia if you have a Hong Kong company. Or, it may be easier to obtain a business deal in Thailand when you have a Thai company, or in Nicaragua when you have a Nicaraguan company.
Put simply, doing business or owning certain assets in certain countries is much easier when you have a local company on the ground versus doing it in a company where you live.
That sounds like a good reason to set up an offshore company to me.
No reason to hide
So, before you assume that all of Mossack Fonseca’s clients revealed in the Panama Papers are criminals and traitors to society, think again. No doubt some of them are, but not the majority.
Either way, be assured that all those involved with Nomad Capitalist (not just the majority, everyone) are doing things the right way. It’s one of the reasons I always insist you know why you’re doing what your doing. It’s also why I invite you to have a face to face strategy session with me to design your offshore blueprint.
Personal service is always better — and for more than one reason.
One report from the ICIJ reported that Mossack Fonseca only knew the real identity of the owners of 204 of the 14,086 companies it had incorporated in Seychelles.
That’s not the way things operate around here.
I’m known for being one of the only guys in the industry to put my face out there. I have nothing to hide and you shouldn’t either.
Plus, working with someone who actually DOES this stuff may be better than going through a law firm anyway. That said, if you have $200,000,000,000, call a law firm, not me.
Nevertheless, working with someone who comes from a strict country like the US means you’ll follow ALL laws, because someone like me knows how strict laws can be. In fact, people STILL say “No, that’s impossible!” when I tell them that US citizens pay tax even if they don’t live in the US. Some people just can’t believe it’s true.
All the more reason to work with someone who knows the requirements and doesn’t focus on easy answers.
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