For example, an expat paying 25 percent foreign taxes on a total income of $250,000 could save $2,000 in U.S. taxes by claiming only foreign tax credits if the taxpayer has a total exclusion on foreign income and a housing allowance of $100,000. Using the exclusion would reduce the foreign taxes available for credit by $25,000. Since the exclusion would come off the bottom of the taxpayer's income, the benefit of the exclusion would be at the taxpayer's lowest rate of tax, so the exclusion would provide a benefit lower than the $25,000 credit he gave up.
Recently a federal judge in Miami has authorized U.S. officials to seek information from UBS AG about U.S. taxpayers suspected of using Swiss bank accounts to evade income taxes, part of a probe that could crack open Switzerland's tradition of bank secrecy. The order issued gives the Internal Revenue Service permission to serve a summons on Zurich-based UBS to obtain information about possible fraud by people whose identities are unknown.
The court granted the so-called "John Doe" summons, a day after the Justice Department made what it called an unprecedented request for the records, part of an IRS investigation into services UBS provided to U.S. clients from 2000 to 2007.The order "directs UBS to produce records identifying U.S. taxpayers with accounts at UBS in Switzerland who elected to have their accounts remain hidden from the IRS."
The law requires United States taxpayers to report all financial accounts in a foreign country if the total value of the accounts exceeds $10,000 at any time during the calendar year. A willful failure to report a foreign account can result in a penalty of up to 50 percent of the amount in the account at the time of the violation.
For a long time it seemed that holding a US passport closed the door on opportunities for Offshore Investment by the average American citizen. Only the super-rich aided by their army of tax lawyers where able to slip Uncle Sam’s relentless grip.
That is no longer the case, a number of unique products are available that now allow the US nationals to invest offshore without bringing the wrath of the IRS upon them.
The first product is a variation on the traditional IRA. The Offshore IRA uses a US based Trustee but the actual assets of the IRA are held by a foreign Sub Custodian, usually a bank or insurance company in an offshore center. The Sub Custodian would provide the Trustee with quarterly account summations and annual valuations that the Trustee is required to submit to the IRS to keep the plan compliant with US tax regulations. The advantage of this structure is it provides a degree of protection from creditors. Because IRA’s assets are held in a foreign jurisdiction, some of which will not recognize judgments from a foreign court, it makes it much more difficult for creditors to seize. The other advantage is that you gain access to offshore investments that are otherwise off-limits to US persons.
The second product is the Offshore Variable Annuity. Like a traditional Variable Annuity it allows your assets to grow without being subject to tax. The difference is that like the Offshore IRA the role of Trustee and Custodian are separated, providing the owner with enhanced creditor protection and a greater range of investment choices. As an American you are taxed on your Income whether you are resident in the US or not, so it is always advantageous to contribute first to the plans that allow you to reduce your taxable income, but if your taxable income is below the foreign earned income exclusion or you are fully taking advantage of the tax deductions but wish to save more, then the Offshore IRA and Offshore Variable Annuity may be just the ticket. If you want to know more about these products please don’t hesitate to contact me. callum.roxburgh@gmail.com
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