By Lief Simon
The term "offshore" is much in the news right now and not in a good way. It's being associated with illicit activities by corrupt politicians and criminal organizations. The global media is having a field day with the so-called "Panama Papers." Right now the focus is on politicians with offshore companies. Next will be other high-profile folks.
And then, I predict, the names and stories of ordinary people will be in the news, people using offshore entities for legitimate reasons who will be caught up in this hurricane.
Here's the most important thing to understand about offshore entities:
They are not illegal, neither to set up nor to use.
It can be the activities of the entities and of the shareholders that can break the law.
The second important thing to know about offshore entities is that they can benefit even us ordinary people.
Don't be afraid to use an offshore entity for a legitimate purpose, such as...
- Holding property in another country.
The easy example is an American buying property in Mexico. A foreigner can't hold title to a piece of property in his own name in Mexico if that property is located within 50 kilometers of the ocean. In that case, you must (that is, you are required by law) to use a Mexican fideicomiso, which is a Mexican trust...an offshore entity be definition.
Other countries impose restrictions on the foreign ownership of real estate that can also require you to use an offshore entity.
In addition, you may also want to use an offshore entity to...
- Minimize probate when you die.
Using an offshore entity that is also offshore to where the property is located can eliminate probate in the country where the property is based. If you use an entity from a jurisdiction that allows for direct inheritance of the entity or its shares, you can avoid probate altogether.
For someone who owns multiple properties in multiple countries, using an offshore holding company is simply a practical administrative strategy, nothing more.
- Provide some asset protection.
A corporation or an LLC can provide asset protection; however, if asset protection is the goal, an offshore trust can be the most effective entity. Frivolous lawsuits are a national pastime in the United States, and the best way to protect your assets and keep them from being vulnerable to attack from some vengeful plaintiff is to move them offshore with the help of an offshore structure.
Holding your stock portfolio in an offshore LLC doesn't change your tax obligation in the United States, but it does put a barrier between the estimated 15 million frivolous lawsuits filed every year in this country and your hard-earned assets.
- Provide for investment diversification.
Most offshore stock brokers and mutual funds won't accept U.S. persons as investors thanks to concerns over associated Security and Exchange Commission (SEC) regulations. However, they will accept offshore entities as clients even if those entities are owned by Americans.
Using a structure allows the brokerage company to comply with financial regulations and allows the American structure owner access to a broader scope of global investments.
- Operate an active business.
Some of the media outlets covering the Panama Papers scandal are going out of their way to make the point that owning an offshore entity doesn't necessarily equate to being engaged in any illegal activity.
However, others are taking the leaking of the Panama Paper documents as an opportunity to paint all offshore entities with the same nefarious brush.
The truth, however, is that having an offshore entity isn't illegal and can provide important benefits for even average people trying to protect their assets and provide, for example, for their future retirement. Far from scandalous, these benefits can sometimes be simply practical and administrative--that is, dull.
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