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The Regulated Asset Protection Structure

Invest Offshore
23 January, 2014

Now is the time to set-up a regulated asset protection structure (RAPS), in a low-tax jurisdiction outside of your country of residence. Simply put; it's time to invest offshore and set-up an overseas retirement plan, and Hong Kong is the best jurisdiction for asset protection

Why Hong Kong you might ask. Because Hong Kong’s Occupation Retirement Scheme Ordinance (ORSO) is a government regulated retirement regime available to residents and non-residents of Hong Kong. The ORSO makes it possible for individuals to establish a retirement plan that has the result that no estate duty, no wealth tax, no capital gains tax, no withholding tax, no VAT, and no annual net income tax is attributed to the pension member. A retirement plan you can set up without leaving home.

Hong Kong is not considered a “tax haven” and therefore enjoys a deserved reputation for business and financial legitimacy. It's a strong likelihood that inside the People's Republic of China will be one of the safest places in the world to both save, and protect assets for your retirement. Hong Kong provides an established, straight forward, low-tax system that attracts legitimate and transparent pension planning for both international and local clients. 

The biggest advantage to the Hong Kong laws is the ability to match the Internal Revenue Code (IRC), code for code, to create a government “RAPS”, also known as a Non-Qualified Deferred Compensation (NQDC) retirement plan. No matter what country you are from, the Hong Kong ORSO allows you to custom tailor a retirement plan to meet your needs.

In the United States, the question whether any compensation plan is qualified or non-qualified is primarily a question of taxation under the Internal Revenue Code (IRC). Any business prefers to deduct its expenses from its income, which will reduce the income subject to taxation. Expenses which are deductible ("qualified") have satisfied tests required by the IRC. Expenses which do not satisfy those tests ("non-qualified") are not deductible; even though the business has incurred the expense, the amount of that expenditure remains as part of taxable income.

A specific type of non-qualified deferred compensation plan/contract simply defers the payment of a portion of the employee’s compensation to a future non specified time. The amounts are held while the employee is working for the company, and are paid out to the employee under trustee discretionary fiduciary circumscribed conditions. 

Non-Qualified Deferred Compensation (NQDC) can be a powerful retirement planning tool, particularly for owners of closely held corporations. Non-Qualified Deferred Compensation plans are not qualified for two things; some of the income tax benefits afforded qualified retirement plans and the employee protection provisions of the Employee Retirement Income Security Act (ERISA). What Non-Qualified Deferred Compensation plans do offer is flexibility of tax treatment and wider and deeper investment choice which 401k plans lack.

The objective to protect assets while putting funds away and investing FROM outside of USA is a perfect fit for one of the nine different types of RAPS investment account structure: 

This foreign country pension law is flexible enough to meet each of the USA IRC 409A requirements (this needs to be explained). The plan can be established for one individual or can be established for a large number of individuals. It can also be established for an independent contractor, including directors.

 Any amounts of money can be placed inside this ''RAPS'' with no restrictions to amount. One flavor of ''RAPS'' IRC Code allows for exclusion of contributions which are no more than 100% of annual income. Another flavor of ''RAPS'' allows for after tax contributions. Contributions are never deductible but rather when qualified are considered excluded under strict rules of ''non-vested'' contributions. When contributions are exempt under code then upon withdrawal they are, of course, taxed at ordinary income rates. 

The lay of the land problem in doing business offshore is that your assets and income typically become a part of your worldwide assets  and worldwide income but the minute you have assets and income inside this a specific flavor of ''RAPS'' then those assets are not part of your worldwide income or worldwide assets.  Assets are not taxable and growth within your investment account is not taxable. In fact, you report both but they are just not taxable and not part of your worldwide assets or income. 

Potential clients come to us and say ''I would like to invest offshore but would like to be in a place where it is just not taxable back here at home'' and this structure does that for them in the USA. Anything inside is not reportable as a taxable asset until withdrawal and anything accrued inside is not taxable under O.E.C.D. standards and not taxable back home in the USA. You report every year but on the reporting form it says the income is not reportable as income and is not taxable until withdrawal. 

Furthermore, you have zero difficulty opening a bank/investment account at top tier International banks.  Are you ready for a regulated asset protection structure investment and brokerage account outside of USA because this structure is a foreign country resident. 

What we have found is that entrepreneurs don't withdraw income beyond normal means and prefer to re-invest capital gains which means that it is sure that they want to make additional investments but they prefer to do those investments from inside their retirement structure which would also fit with your interest to purchase property abroad. You and your estate have tax advantages to holding your property within this structure. 

IRC Rules restrict investment choice in a 401K or IRA but IRC Code specifically permits this RAPS to have investment choice with virtually no limits (sorry no poker chips or Ferrari's)

About the Author

Invest Offshore

Invest Offshore specializes in asset protection, offshore investment and offshore banking information. Our team provides Company Formation in any International Finance Center (IFC) and assists clients in establishing online trading accounts for global markets. www.investoffshore.com


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