U.S. Approved Offshore Corporate Inversion for Your Small Business
11 December, 2015
Pfizer completed the largest offshore inversion in history last week. They invested $160 billion to move their tax home out of the United States and into Ireland. The reason for the move is simple - to cut their tax rate from 35% in the US (the highest corporate tax rate in the industrialized world) to 12.5% in Ireland.
After deductions, interest expenses, etc., Pfizer's current worldwide tax rate is about 23.4%. Analysts suggest that this inversion will cut the company's total tax rate down to 15% by 2017 and a savings of $2.1 billion that year.
Those numbers are quite impressive. And, if you're a multi-billion dollar company, you might consider doing the same. Offshore inversions have become all the rage and are big business for fancy lawyers and overpaid CPAs.
Unfortunately for me, CEOs of mega companies aren't reading my blog. So, what about the rest of us? What of the small to medium sized business owner that wants to get in on the fun? Can we spend a bit less than $160 billion and get the same benefits?
What if I told you that I can get you a deal that is better than Pfizer's? That you can outmaneuver these multinationals to a deal that's 66% better than Pfizer, Apple and Google's tax contracts? What if I said there's a simple offshore corporate inversion that will cut your corporate tax rate to 4%? And what if I told you that these tax benefits are guaranteed for 10 years? That it doesn't matter how the political winds blow, you're good to go for a decade?
Then, what if I told you that the US government and the IRS fully support this particular form of offshore inversion? What if I said there's a special section in the US code just to facilitate this move? That American politicians are hoping you'll take this deal?
Finally, what if I could convince you that, while most offshore inversions are seen as "positively un-American," the move I propose is patriotic and will help our citizens?
Standard offshore inversions will cost the US treasury some $20 billion over the next decade and are constantly under attack by the press and politicians. What if I tell you that the offshore tax plan I propose has the backing of the US government and the IRS?
Would you be interested in cutting your taxes and doing good by US citizens in need?
Here's what you need to know to cut your corporate tax rate to 4% with a patriotic offshore inversion:
The US territory of Puerto Rico is offering you an 10 year tax contract - one with the blessing of the IRS and the backing of the Federal government - one that will cut your corporate tax rate to 4% while allowing you to live in the United States.
- In an inversion, you move the tax home of your corporation out of the United States. There's no requirement that you or your family move to Puerto Rico along with your entity. Pfizer's executives are not moving to Ireland they won't even notice the change.
First, let's talk about why Puerto Rico can offer a deal that no country in the world can match.
Puerto Rico is a US territory. As such, it's tax laws trump the Federal tax code. If you or your business become resident in Puerto Rico, the island's laws control.
That's not the case with any foreign country. So long as you're a US citizen, you must pay US taxes and follow the US tax laws. It doesn't matter where you live or where you're incorporated. Hold a blue passport and you're paying Uncle Sam.
The only exceptions to this rule are the US territories. Residents of these islands are exempt from Federal taxation. Specifically, 26 U.S. Code § 933 - Income from sources within Puerto Rico exempts any resident from Puerto Rico from Federal income tax.
And, because Puerto Ricans are US citizens, and the island is a US territory that needs help, an offshore inversion that moves your tax home from the US to PR is both patriotic and politically correct!
Second, let's talk about why Puerto Rico is making this offer.
It's simple - Puerto Rico is broke and desperate. The government owes $72 billion to investors that it has no chance of repaying. Based on what the Governor is saying, Puerto Rico will begin defaulting on its payments January 1, 2016. Add to this the fact that Puerto Rico is prohibited from filing bankruptcy, and you have a dire situation with an island out of cash.
In order to bring jobs and capital to the island, Puerto Rico passed Acts 20 and 22. Act 20 offers businesses that move to the territory a 4% tax rate and Act 22 gives individuals a 0% capital gains rate.
I'll focus on Act 20, which is basically an offshore inversion that moves your tax home from the United States to Puerto Rico. Act 22 requires you spend at least 6 months a year on the island. With act 20, you can live where you like.
Here's the offer from Puerto Rico.
Move your corporation to Puerto Rico, hire at least 5 full time workers (W-2 employees, not independent contractors), and receive a 4% corporate tax rate on all income earned by the business. That's it simple and straightforward.
If you, the owner operator of the business, will live in the United States, you must draw a fair market salary from the PR company. Your wage, maybe $100,000, will be taxable in the US. Net profits in excess of salaries paid to US workers can be retained in Puerto Rico tax deferred at 4%.
An inversion to Puerto Rico puts you on par with the US firms set up in offshore shelters. It gets you tax deferral at 4% - better than the 12.5% most of the Fortune 500 companies are paying for the same benefit.
- The top 500 US firms keep $2.1 trillion in offshore tax havens and saved $620 billion in taxes last year.
In order to qualify for an Act 20 inversion, you should be providing services from Puerto Rico to companies and/or individuals outside of Puerto Rico. The easiest inversions are those for tech companies, internet marketers, website developers, those with call centers or online support teams. Other candidates include investment advisors, hedge funds, and any business that can spinoff a division from the US to Puerto Rico.
How we can help.
We offer two tracts in to Puerto Rico.
We can form your corporation, negotiate your Act 20 agreement, manage your inversion, open your bank accounts, and draft an opinion letter / game plan to operate from Puerto Rico.
We can provide a turnkey solution. This will include all of the items in 1 above, plus provide office space, employees, human resources management, computers, shared receptionist, and all of the other things that you require to get your business up and running.
We can also create partnerships and joint ventures between similar companies to share employees. For example, you want to set up an internet marketing group in Puerto Rico, but you don't need 5 full time employees. Maybe 2 or 3 partners will come together to create one new business in Puerto Rico that benefits everyone.
Two more posts on this topic.
For further reading, check out these two articles:
Contact me for more information.
I hope you have found this article on the offshore tax planning benefits of Puerto Rico helpful. For more information, please send an email to firstname.lastname@example.org or give me a call at (619) 564-4062. All consultations are free and confidential.
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