Use Offhoser Corporations to Hold Bank Deposits
1. Anonymity
A foreign corporation is useful in protecting a foreign person’s anonymity and privacy with his financial affairs. With the execution or negotiation of new tax information treaties between the United States and many Latin American countries, many bank depositors fear that their own governments could obtain information concerning bank deposits. Use of a corporation registers the deposit in a company’s name as the owner of the deposit. As a result, information regarding that account is processed in that company’s name and not the foreign principal’s name. Further, even though the corporation’s officers and directors are registered at the depositing bank, the shareholders’ names are usually not required to open an account.
Example:The United States Treasury recently froze a bank account (because its owners had dealt with a certain exchange house suspected of money laundering) held in the name of a prominent Latin American businessman. The name of the account holder and the amounts of his deposits were obtained by newspaper reporters from court records and published throughout the United States and South America resulting in consider-able problems to the businessman. If the account had been held in the name of a company, however, only that name would have been published and the account holder would not have been linked with the deposit.
2. Estate planning
Accounts which are held in one person’s name are subject to United States probate in the event of the owner’s death. This can result in lengthy delays in distribution to heirs, considerable expense and often the requirement for obtaining foreign legal documents and court orders. Corporations, on the other hand, are perpetual and trust agreements for the shares or bearer share certificates will provide continuity in the event of the owner’s demise.
2. Choice of Jurisdiction
An accountant is not required although one is usually retained to help organize the initial books, provide private monthly statements to the company’s officers, and file the annual tax return.
2. Banking
Opening a bank account for the company can be easily accomplished. Generally the banking institutions desire copies of the corporate documents, acts authorizing individuals to sign on behalf of the corporation and some knowledge of the persons involved in the company.
2. Employees
Formation of a United States company to hold deposits would result in taxation in the United States, since such corporations are considered United States property and therefore subject to the United States estate (inheritance) tax. Foreign corporations enjoy the same tax benefits as foreign individuals - no taxation of bank interest and (if properly structured) no estate taxes. Although a corporation formed in almost any country outside the United States can provide the above benefits, it is our experience that the British Virgin Islands (BVI) offer more benefits than most jurisdictions.
The British Virgin Islands are constitutionally autonomous from the United Kingdom but are governed by England as to external affairs, defense, internal security, civil services and court administration. This results in stability and similarity to the American legal system and makes it easy for bank officers and other Americans to understand and work with such companies. Some of the benefits of the BVI corporations are:
United States Taxation
1. In Florida, individuals pay a 15% - 31% federal income tax on income (there is no state individual income tax) and corporations, whether foreign or domestic, pay a combined federal and state rate of approximately 40%. On the first $100,000.00 of corporate profits, there is a graduated rate which averages about 25%. Dividends by Florida corporations to foreign stockholders are taxed at 30%. However, in the case of a liquidation of a corporation held by a foreigner there is usually no dividend tax. Only the first $60,000.00 of a foreigner’s estate is exempt from federal estate taxes. Real prop-erty and shares of stock held in a foreigner’s own name as well as other personal assets are subject to federal estate taxes at an escalating rate.
Companies can reduce taxes in a number of ways: 1) paying their executives higher salaries and bonuses so that the tax is reduced from the corporate rate of 40% to the individual rate of 31%; 2) work done abroad for a company such as marketing can be paid for and deducted as an expense in the United States; and 3) trips for business are also deductible. Individuals can deduct from their personal income interest on home mortgages, charita-ble contributions, and a fixed sum for each dependent and medical costs, but receive relatively few other deductions. .
2. Besides income taxes, there is a 6.2% tax for Social Security on the first $76,200.00 of wages and Medicare tax on all wages earned. The employee also pays a similar amount. There is an unemploy-ment compensation tax of .001 times the total payroll. In addition to these expens-es, workmens’ compensation insurance is required to reimburse for injury. For three or four employees this expense would probably not exceed $1,000 annually. Liability and casualty insurance (approximately $1,000 - $2,000 per annum) and health insurance (cost would depend on value or number of employees) are additional costs. Miami and Miami-Dade County have occupational license taxes which combined usually do not exceed $1,000.00.
3. Sales Tax
Florida has a 6.5% sales tax on sales of merchandise at retail level. For shipments out of state or out of the United States, the tax is not collectable. Each state and city within the United State has its own sales tax laws.
4. Residency
Any person who spends 183 days in any year in the United States must pay U.S. taxes on worldwide income. Thus, interest earned in Switzerland, salary in Brazil, apartment rental income from Colombia and U.S. salary are added together to determine taxable income subject to a credit for taxes paid abroad on foreign income.
Taxation is based on income not assets. Tax planning for individuals moving to the United States should be considered prior to a move, such as sale of a residence abroad or acceleration of bonuses prior to moving to the United States. Consider a purchase of a foreign home in 1980 for $100,000 which is sold after U.S. residency for $1,000,000. There would be a tax on $900,000 of income or approximate-ly $300,000 of tax.
Other U.S. Considerations
Many persons desire anonymity in their United States operations. Thus, they use Americans as their corporate officers to avoid disclosure of their own names and hold the stock of their U.S. corporations in the name of foreign or off-shore corporations.
1. There are no taxes on earnings outside of the BVIs.
2. There are no minimum capital requirements. 4. No public record is kept on the identity of shareholders or directors. 5. New corporations may be formed in less than one week. Existing “shelf” corporations, which generally are on hand, can be delivered in hours. 6. There is no requirement for an annual accounting or filing of tax returns with local governmental authorities (unless the corporation engages in business in the United States).
