Offshore in Nevada, and Elsewhere
By Lowtax Editorial
15 May, 2001
Nevada is the jurisdiction of choice for many Canadians, Europeans and Latino's: it is also a great place to start offshore for an American. What? Offshore for an American? Yes, actually if you are a US citizen and you live and operate a business from any of the other 49 states, Nevada is considered offshore or foreign insofar as your home state is concerned. Of course Belize is also an offshore jurisdiction in the literal sense as it truly is a foreign country. Offshore means just that off your, as in your home countries, shore.
Nevada, among other pluses, has no state income tax. The state doesn't need income tax because the revenues from the gaming industry carry half the States tax burden. Many taxes you find common elsewhere in the US do not exist in Nevada. And Nevada is the only state in the union that approaches the concept of privacy.
Belize has no income taxes whatsoever for non-residents. For example offshore corporations have an exemption from taxes in perpetuity. Offshore Trusts and similarly have no taxes. This means no gift tax, inheritance tax or any other transfer tax. There are no capital gains taxes. In the case of a trust or corporation there are no taxes assessed to the entity for not distributing the entities earnings. This means that all of the money earned by your investment vehicle is kept. Tax-free.
The Nevada option is really quite simple but in some respects it is easier for a European, Australian or someone from South America to appreciate the values inherent in a Nevada strategy than it is for a U.S. citizen. For the average American the concept usually comes as a surprise as they tend to think of the U.S. as one giant tax waiting to be levied. With this mindset it is nearly impossible to fathom the idea that right here, in our own back yard, the potential tax benefits can be significant. If you couple this home made remedy with a 'true' Belizean offshore solution then you can really give the tax man a run for his money.
Belize earns its revenue the same way every other nation earns its revenue, through taxation. The difference is that Belize, unlike the US, only taxes its own citizens and the tourists that visit this lovely little country. And these are hidden taxes, the ones you pay when you order a drink or stay at a hotel. The other source of income, are the fees assessed to non-citizens to incorporate or establish a trust or International Business Company ("IBC"). Naturally if you form a corporation you have to pay annual renewal fees, just like in the US, but they are small, set fees with no relationship to company earnings whatsoever. The benefit Belize derives from these tax-free solutions is simple. They employ Belizeans. One must have a registered agent just like in any state in the US. One must have an address. These are not free, but they are very affordable.
Nevada, on the other hand, has chosen to permit gambling. The result is an industry without smokestacks that attracts billions of dollars into the state. Nevada gets half its revenue from the taxation of casino income. With all, of this casino revenue there is no need for personal or corporate income taxes (state level). Nor are there taxes that are common elsewhere in the states such as franchise taxes on income, special intangible taxes, capital stock taxes, chain store taxes, admissions, inheritance and gift taxes.
For some the most appealing aspect of incorporation in Nevada is the respect for privacy. Nevada does not keep the identity of shareholders in the public record. In other words, who owns a corporation is no ones business but the owner(s). If someone is pursuing your assets and they suspect that you might own a related Nevada Corporation, they're going to have more hurdles in discovery than in most states. A record search for example, generally ends up in a dead end.
This is an important point with respect to offshore solutions as well. The IRS taxes income according to ownership. This is true whether the US taxpayer earns the money on US soil or not. What makes Belize so attractive to the offshore investor is its policy of privacy. Unlike the US, Belize law requires anonymity. There are heavy penalties both civil and criminal in nature for violating these policies. What's more offshore is big business in Belize and reputation is everything. One slip of the tongue and that person is history in the offshore industry. Total privacy can be assured with the right combination of offshore structure.
Nevada requires that corporations have at least one officer and one director but it can be the same person or it can be another corporation. There are professionals in Nevada who will function as the officer and director of your company. They are called nominees who essentially do as instructed provided that their instructions do not violate the law under which they operate. These services are usually provided in conjunction with a corporate headquarters package, which in effect provides a virtual office for the company in Nevada, which includes a telephone number, someone to answer the phone a fax number, mailing address, bank account and puppet director. A nominee officer is not required to know whom the shareholders or even know their names. The nominee need only know from whom he or she is to take orders from and where the list of shareholders is kept not necessarily who is listed on the shareholder's Ledger. Only under court order is the whereabouts of a shareholder list required to be, disclosed. And the shareholder list can be maintained in another country altogether. Can you imagine how frustrated some predatory lawyer in your home state is going to be when trying to connect you with your Nevada Corporation? Not only can you save income taxes levied from your home state, you can also build a firewall of privacy to protect assets.
All of the above is true with respect to Belize as well, but even more so. Because unlike Nevada, Belize does not rely on a steady stream of tax income from the Federal government in the same way that a state does. Sure Belize gets aide from the US but not like a state that uses that money to say repair an interstate highway. Belize is a British Independent and relies more on Caricom (Caribbean Community) where not so coincidently Belize derives its common law System of law down there. (The same system the US adopted, by the way.)
This is the principle in a nutshell, and it is no longer a secret: As much as sixty percent of the entire worlds wealth is held offshore. Its simple, you transfer profits from a high tax jurisdiction to a jurisdiction with low or no tax. The Nevada option works like this: first we shall assume that you have a business that generates income in the state where you currently reside, and that your home state has some form of state income tax. The Nevada strategy calls for you to form a corporation in Nevada.
With the help of skilled professionals you arrange your finances that the business in your home state continually owes money to your Nevada Company-so much so that the business in your home state shows little or no profit. The profits show up in your Nevada corporation, where there is no state income tax and where no one knows you own the company. This is called up-streaming profits. The IRS calls this kind of strategy income stripping and they don't like it but in the case of state, to state strategy like this one it may not have any effect on Federal taxes, just state income tax so federal taxes are not an issue and therefore the IRS really doesn't care. Permit me to explain.
Put in other words by owning two companies one in your home state that conducts your business and the other in Nevada that simply is a creditor of your operation business you have the capacity to shift funds from your home state business to your privately owned Nevada business thus reducing your overall tax burden by reducing net earnings.
Why is this so valuable? You have just saved an amount equal to the state income tax that would have been due from your home state' business earnings, minus the cost of doing business in Nevada. You have also gained a significant measure of privacy because Nevada does not provide for shareholder information in any public record.
Now throw in your Belize Corporation into the mix. Sure you still have to pay federal income tax on revenue generated from US sales and channeled through your Nevada corporation, but without state tax and you can do the same thing with your Belize corporation as you can with your home states corporation. Operate it with low profits sending the higher profits through your offshore solution.
Why not Delaware?
Nevada is not the first domestic corporate shelter. Delaware has been and continues to be home to scores of major corporations mainly because the corporate law there is so well established. But also because corporate directors have more control there than the shareholders. But Nevada and Wyoming both improved upon Delaware's laws and made the first rules that are more favorable to both large and small corporations. The most recent incorporation rush started in Nevada on march 13, 1987, when legislation was approved protecting corporate directors and officers from personal liability for acts committed on behalf of the corporation or by the corporation. These laws along with more flexible capitalization and maintenance requirements have made Nevada dethrone Delaware as the "incorporation capital" of America. Anyone seeking to do business in the US should look to Nevada first.
Nevada has other advantages over Delaware and all the other US states. Delaware has been too quick to share information with the federal government that Nevada considers to be private. Delaware also charges franchise tax in addition to state income tax. Nevada' constitution forbids the imposition of state income tax and has no corporate income, or franchise tax. Even though the franchise in Delaware is slight, it still means disclosures including the dates of shareholders meetings places of business outside of the state, and revelation of the number and value of shares issued. Nevada law requires none of these disclosures. In fact, as a matter of policy, the state of Nevada involves itself as little as possible in business and corporate transactions. Shares in a corporation can be sold or transferred with no state tax. Unlike some states that tax a corporation according to the number of shares issued, Nevada has no tax on corporate shares. Neither is there a succession tax, the federal equivalent of inheritance tax, found in most states. Stockholders and directors need neither live in Nevada nor hold their meetings in the state. This means that you can hold your meeting anywhere including your own state or Hawaii and deduct the trip as a legitimate expense. Your records can be kept anywhere. Your home or in Belize, you get to decide, not the local government. Nevada has nothing to say about how many shares you issue and even allows for bearer shares that contain no names whatsoever.* This means they can change hands easily and with no trace. Another advantage is that corporate directors may change the bylaws of their company without state approval (read that interference) and there are no minimum capitalization requirements. A Nevada corporation can buy shares of its own stock and hold them, transfer them, or sell them. The corporation may use the stock to buy or lease property, or options on property. Stock may be used to pay for services or labor and whatever the director thinks these things are worth are essentially beyond the any ones question, that is, with the notable exception of the IRS. Nevada does not require tax reports and it does not share information the information it does gather with other states or the Federal Government. Nevada is the only state that does not share information with the IRS. Now of course the IRS doesn't like this but the last time the agency tried to get information in 1991, it was "no dice". In Nevada the burden of proof is on the Federal Government to prove that they are unable to get information from any other source. They may not engage in fishing expeditions in the state of Nevada.
In Belize just months ago a similar thing happened. A US tax payer was convicted of offenses associated with the practice of money laundering. As a result and pursuant to US law he was required to forfeit the assets associated with his activity. The US Attorney General became aware of an offshore account held in Belize and sued the government of Belize to seize the assets there. The Attorney General ("AG") thought that this would be a "slam dunk" Surprise. The Supreme Court of Belize held in favor of the tax payer because the US had not signed the treaty yet, it was just sitting on the AG' desk waiting to be signed. So does that mean that now the US can seize assets held offshore in Belize? The answer is yes if you launder money. But not if your just trying to avoid paying the high cost of taxes in your country. You see the treaty the US signed with Belize was designed to curb illegal activity such as drug dealing and terrorism. Not income tax avoidance. Only the crimes enumerated in Belize's Anti-money Laundering Act are crimes where if convicted in the US it can reach your assets. Income tax evasion appears nowhere in the pages. Your money is safe in Belize.
Too Good to be True?
If it sounds too good to be true, it usually is, but not in Nevada and definitely not in Belize. That is because of Nevada's and Belize' user, friendly corporate law, and Belize's even friendlier Treaty with the US. In fact it is so true that many an entrepreneur and even many internationally recognized celebrities incorporate in Nevada and offshore. Corporations are considered legal entities or persons for tax purpose. Because of this they are afforded many of the same rights that people are. Corporations may buy and sell property. They can sue or be sued. They can make money and pay low or no tax. Remember there is nothing in the entire Internal Revenue Code that says you must pay the most tax possible. On the contrary the code is there to help the taxpayer know when and how much to pay, or not to pay at all! Poetic isn't it?
Limited liability. Only the corporation may be sued for things the corporation engages in. Not the shareholder, which may be you and your family and friends. This means that you may enjoy the benefits of a corporation and take advantage of its limited liability. For example, the corporation could accumulate debts that benefit you, (corporate sail boat or island retreat) and then for bankrupt. Creditors could not go after your assets to satisfy corporate debt, leaving your families personal estate completely in tact. (I am not suggesting this as a strategy, just merely pointing out that this would be the case.) This is known as the corporate veil. One needs to carry business insurance for intentional and unintentional acts of malfeasance to avoid the veil being pierced. Or one need only carry on a legitimate business, that is have a real business with phone numbers, addresses, the appropriate license and of course personnel. One should also carry the required insurance that is dictated by state law. If these simple steps are complied with one gains the protection of the corporate structure. Put your money in a bank, not in the register of the IRS.
How does all this work? Its called structured layering
You can have an offshore or foreign corporation or IBC own the Nevada Corporation. A trust in Belize or Foundation in another jurisdiction may be established. The offshore corporation is funded with the assets of the trust or foundation in exchange for all of the shares of the corporation (the one that owns the Nevada Corporation). A nominee settlor is chosen and that settlor runs the trust or foundation. This effectively removes the US taxpayer from ownership for IRS purposes. A separate agreement is made with the beneficiary of the trust or foundation with respect to actual control. Now you may negotiate an employment agreement with your Nevada Corporation for which you would receive a negotiated salary and for which you would pay US income tax just like everyone else but all the income from the corporation would escape the clutches of the IRS, and Voila. There you are. Keeping the lion's share of your hard earned money.
Now you may incorporate in Nevada and avoid paying state income tax on all of your corporate earnings. You may also incorporate in Belize, create a trust and avoid state and federal taxation from all of your corporate income generated from all over the world. Only pay tax on income generated on US soil, minimize this by carrying high operating costs and you are well on your way to becoming financially secure for the rest of your life. Cost effective, safe and secure. Think about it. Then give us a call at Butterfield, Reimer and Associates, S.A. 011 501 2 34274, and ask for Antone.
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