How to Save on Taxes by Living Offshore

Have you ever dream of living and earning money without paying taxes and not breaking any laws? Do you want to have a carefree, undisturbed retirement with a regular income that stays all for you? If the answer is yes, your dreams can become a reality.

Now that we’ve caught your attention, it’s important to know that while all this is possible, there are specific requirements you need to meet and steps you need to take. In this article, we are going to show you how exactly you can fully enjoy the money you make without having to share too much of it with Uncle Sam.

How to Live Tax-free in Panama

First and foremost, you will have to move abroad if you’d like to spare yourself IRS taxes. One of the best places to set your eyes on is Panama. Not only can you be free from paying taxes in the U.S., but providing you go to the country prepared, you may be eligible to pay no taxes in Panama as well. The way to achieve this is by setting up a business there, which generates income for you as an individual from outside of Panama. To put this in simple terms, the money you earn must come from abroad and not from customers within the country. Internet-based business or consultancy would be your best choice because you can prove that your income was not earned from local residents. Of course, for the part that has been generated by Panama residents, you would have to pay tax according to the taxation rules and rates of the country. In regards to the U.S. tax, you wouldn’t have to pay any as long as your salary is less than the maximum for the FEIE (Foreign Earned Income Exclusion), which for 2017 is $102,100 for 2017.

If you are a pensioner and move to Panama to spend your retirement there, you won’t pay taxes on your retirement income in the country, nor would your dividends and interests will be taxable if earned abroad. However, you would still have to pay U.S. tax on your dividends and interests, which would be the same as if you were living in the States. That said if your home state has retirement income tax you may be able to get rid of it by moving to Panama.

U.S. citizens who want to reside in Panama and set up an offshore company there need to know that they can avoid paying taxes (both federal and state) on the salary they receive from that company. This is done by declaring your income as Foreign Earned and applying for FEIE. The requirement is the actual job has to be one outside of the U.S., but there is no restriction on where your customers are based, so they can also be from within the U.S.

In a different scenario where you would be interested in paying your own Social Security contributions in order to maximize your payout upon retirement, you wouldn’t need to declare your income as earned in an offshore company (essentially, you don’t need to set up an offshore company). Instead, you can put your individual income as earned from work done as a sole proprietor and file Form 1040 Schedule C. The downside of that is that you would lose some of your FEIE.

Hong Hong – The New Tax Haven

Much like in Panama, in Hong Kong, you are only taxed on income that is derived from sales inside the country. The tax rates are also quite favorable between 2% and 17% depending on your income. So if you reside in the country but trade outside of it you will not be liable for any tax. There’s even better news – Hong Kong doesn’t have inheritance taxes, capital gains, taxes on interests paid to foreign creditors and dividends paid to non-resident shareholders.

Hong Kong is a preferred destination for the creation of offshore companies in Asia. The reason for that is because the organization can be set up as a tax-free entity due to the territorial definition of income mentioned above. That applies even if the management and control of the company are located in Hong Kong. However, if you plan such a step, you should definitely contact a professional tax advisor or an experienced CPA who would guide you in the right way to set up your offshore company, avoiding the 16.5% corporate income tax. This tax is only applicable to income derived from sales outside of Hong Kong, so with the right commercial relationships, you get to keep that 16.5% as part of your profit. Even better, your company will hardly be on the close watchlist of the IRS as an offshore organization, because Hong Kong doesn’t have the rename of a tax haven due to its significant trading economy.

More proof for the U.S. overlooking of legal tax avoidance options in Hong Kong is the ORS (Occupational Retirement Scheme). It’s available to everyone who resides in the territory and it is pretty easy to obtain. If you wanted to protect your money from U.S. taxes, you could go to Hong Kong and set up a shell company. You would have to appoint yourself as a director, using a local employment contract and sign up with a trust organization, which provides an ORS. You would have a great level of freedom as you can include, various assets, including property, cash, and others. You will also be able to oversee the accounts yourself. The beauty of ORS is that there’s no time limit for accessing it. If you wish you could retire in a couple of months time or wait for 10 years. It would be entirely up to you, because essentially, what an ORS is, is a flexible bank account.

Using this scheme is certainly a loophole in the international anti-tax evasion system, but it is completely legal. You may be aware that IRS has its ways of discovering shell companies used for the cover-up of a tax evasion. That’s true and happens mainly through the international agreements FATCA and CRS, joined by around 100 countries in the world. Those agreements oblige the members to share information on the tax accounts of foreigners and expats with each other. And here comes the good news, although Hong Kong is part of these agreements, the CRS falls out of both, because it is considered a “low-risk” for tax evasion and those who manage them are labeled as “non-reporting financial institutions”. If that’s not one of the most tax-efficient pension schemes for individuals with high net-worth, we don’t know what could surpass it.

If you’d like to know more about living a tax-free life, becoming an owner of an offshore company or just enjoying your retirement to the fullest without worrying about taxes, the best thing you could do is contact a good CPA to go over all available options and make sure you are not missing an opportunity to maximize your wealth.

Fulton Abraham Sanchez, the founder of FAS CPA & Consultants of Miami, FL, is a Certified Public Accountant specialized in Offshore Banking Consulting. You can email him to fa@fascpaconsultants.com.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA is a Certified Public Accountant, specialized In Tax Planning, International Business, Wealth Management and Offshore Banking. You can email him to fa@fascpaconsultants.com or follow us on Facebook : FAS CPA & Consultants.

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