Thomas H. Rowley, Ph.D., CPA Maria Guiselle Solano A., M.Tax.

Transcription

1 Thomas H. Rowley, Ph.D., CPA Maria Guiselle Solano A., M.Tax.

2 Brief audience survey How many of you already have: An offshore Corp? An offshore Trust? Purchased property outside the USA? Have an operating business that could be established offshore? How many of you would like to: Invest in a business outside the USA? Create a new business outside the USA? Diversify your investments to include property offshore? Show of hands please.

3 Gregory v Helverin 293 US 465 (1935) The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted. US Congress and the Treasury Department have spent the intervening 82 years whittling away at this right.

4 Some Relevant USA Compliance Rules recurring & current hot topics Bank Secrecy Act (1970) Privacy Act of 1974 ( PL ) FBARs Now known as FinCEN114 (Financial Crimes Enforcement Network) HIRE Act (2010) FATCA Form 8938 Informationsharing agreementswith USA

5 Common offshore legal activities Buy property for future use a/o investment Create an offshore trust Create a subsidiary or parent entity offshore of a related US/EU based business Transfer funds offshore for asset investment a/o protection Repatriate money invested offshore

6 Some unintended consequences Buy property and hold it in a Foreign Corp Great asset protection Easy wealth and generation transfer vehicle Makes future sales easier and sometimes lowers tax costs But creates a Controlled Foreign Corp if US persons own more than 50% of the stock CFC form 5471 is a complex compliance report required of all US shareholders who own more than 10% of any CFC An attachment to your personal tax return

7 Some unintended consequences Buy property and hold it in a Foreign Corp Great asset protection Easy wealth and generation transfer vehicle Makes future sales easier and sometimes lowers tax costs But Plus the corp is an other foreign financial asset to be reported on form 8938 FMV of asset Who owns it Where it is Often creates the requirement to file the 8938 due to the FMV exceeding the filing threshold

8 Some unintended consequences Buy property and hold it in a Foreign Corp Great asset protection Easy wealth and generation transfer vehicle Makes future sales easier and sometimes lowers tax costs But Tax Cuts and Jobs Act 2017 (PL ) Deemed repatriation GILTI- Global Intangible Lowtaxed Income Accumulated Earnings & Profits of CFCs will be subject to an immediate tax and an ongoing tax which substantially reduces the tax deferral aspect of reinvesting the profits of a CFC. Particularly hard hit will be dual national owners of multi - generational successful business enterprises.

9 Offshore Considerations Business opportunities Tax and currency Time zone Banking World image Labor costs & availability of skilled workers Professional services Communications Personal adaptation Language Expat community Adapt to culture & pace Adapt to climate Access to family at home Safety & security

10 Example of Panamanian corp owned by a US person and therelated compexities in income tax presentation Licda. Maria Guiselle Solano A. Feb 2018

11 Comparison of Tax Reports Panamá Personal Declaracion de Renta Personal income & deductible expenses No interest or dividend disclosures Juridica Declaracion de Renta USA Personal Income Tax return Interest & Dividend Income - Schedule B FBAR acknowledgement Other Foreign Financial Assets - Form 8938 Controlled Foreign Corp form 5471 et seq. ForeignBank Account Report form FinCEN114 Foreign Tax Credit - Form 1116 Licda. Maria Guiselle Solano A. Feb 2018

12 Conversion of IFRS to US GAAP Panama Corp controlled by a US Person Licda. Maria Guiselle Solano A. Feb 2018

13 Panamanian Private Foundation Grantor Trust Must obtain a US Employer Identification Number Must file form 926 or 709 for transfers to the foreign trust Must file an Annual Income Tax return, form 3520 or 3520A ALL Grantor Trust income is treated as income to grantor if not distributed to others regardless of whether any distribution to grantor is made. Disregarded Annual Election to Disregard the entity, and to reflect the income to the grantor. Beneficial when a Foundation has losses in the early years Licda. Maria Guiselle Solano A. Feb 2018

14 Offshore Considerations Business opportunities Tax and currency Two countries involved Additional Panama issues Work permit? offshore? Targeted tax exemptions Tourism Forestry

15 Offshore Considerations a Panamá perspective Business opportunities Tax Currency local curency called Balboa, but is actually the US $ Panamá taxes Personal and corporate income taxes ONLY if you have Panama source income are there Individual tax filings IFRS vs US GAAP conversion necessaryfor US filings Property taxes FMV vs catastro value

16 Offshore Considerations a Panamá perspective Business opportunities Tax currency Panamá taxes Muncipal business licenses Revenue based license Sales taxes Fiscal printers & regular reports Electronic invoicing

17 Offshore Considerations a Panamá perspective Business opportunities Tax currency Panamá taxes Payroll taxes Labor code compliance issues 15% plus? Employer share

18 Pros and Cons Advantages of being offshore: Asset diversification Asset protection Favorable tax treatment of income depending on source Disadvantages of being offshore: Lack of representation Complex compliance rules

19 Pros and Cons- Saved the BEST advantage for last F oreign E arned I ncome Single most important aspect to US citizens living & working outside the USA E xclusion

20 ExPat s tools Advantages of offshore Foreign Earned Income Exclusion Control over repatriation timing on dividends Exempt from Obamacare Qualifying as Bona Fide resident: Visa without time limits Physical home v tax home Intention counts Qualifying under Physical presence test : More than 330 days out of USA No visa requirements or intent Any combination of countries qualifies Around the world cruises do notqualify (Int l waters don t count as a country)

21 Foreign EARNED Income Exclusion in 2017 is $102,100 per taxpayer Earned: Foreign salaries and wages, bonuses and commissions earned for personal services Unearned income Interest Dividends Capital gains

22 Foreign EARNED Income Exclusion in 2017 is $102,100 per taxpayer Earned: Foreign salaries and wages, bonuses and commissions earned for personal services Allowableshare of business income from farming or a profession Partnership income share Expenses paid on your behalf Non cash income: Housing and other allowances paid by an employer

23 Offshore Considerations a Panamá perspective Business opportunities Tax and currency Banking World Image International Info Exchange FATCA has become a worldwide standard thanks to OECD Local banks are reluctant to do business with US persons who are not legal residents Panama Papers disclosures very few US individualsor entities

24 Offshore Considerations a Panamá perspective Business opportunities Tax and currency Time zone Banking World image Labor costs & availability of skilled workers Labor Code Heavily favors the employees Reduces loyalty and willingness to provide extensive employee training Near full employment in Panama means competition for work force Termination can be expensive

25 Offshore Considerations a Panamá perspective Business opportunities Tax and currency Time zone Banking World image Labor costs & availability of skilled workers Professional services Bilingual professionals Available but more expensive Few indpendent local CPAs Some CPAs in Regional representative firms of international firms Fewer independent attorneys Many independent real estate pros A few bilingual bankers and investment brokers

26 Offshore Considerations a personal perspective Business opportunities Tax and currency Time zone Banking World image Labor costs & availability of skilled workers Professional services Communications Personal adaptation Language Expat community Adapt to culture & pace Adapt to climate Access to family at home Safety & security

27 especially has a solid opportunity for entrepreneurs Contracts signed for 2 additional lines of the Metro which has been a very popular success, plus a 4 th bridge over the canal.. Billion$ more to keep the pump running on government spending = low unemployment and building middle class $300 million in wind energy installed; $1.2 Billion contract award to a local subsidary of AES (Arlington VA) to build & operate a 350 MW gas fired electric energy plant in Colón province Is pro business and foreigner friendly And its always summer! Enjoy your visit Thank you for your attention!