We set up an offshore company in a tax haven | Hacker News Reader

We set up an offshore company in a tax haven

npr.org

66 pointssgloutnikov68 comments

I think what’s most surprising about both the Panama papers and the Pandora papers, is the total lack of Americans in both.

If you were to believe popular media narratives, rich Americans would be the number 1 clients of most of these firms.

But they aren’t, and if you adjust by percentage of rich people, the US is dramatically underrepresented.

I think there’s two contributing factors to this:

1) The US has relatively low capital gains and inheritance taxes as compared to most countries in Europe and elsewhere, and since most rich people only care about capital gains and inheritance, it makes tax evasion less profitable when done successfully

2) The power of the US treasury to enforce draconian global reporting laws like FATCA and FBAR and global tax. This cannot be overstated. The US can cut off your banks ability to trade in dollars—-which is effectively a death sentence for a bank. Therefore pretty much every bank on earth is willing to comply.

In the US, the problem isn’t offshore tax evasion, it’s the actual domestic tax code itself which allows for all the loopholes!

Meanwhile, if you’re an average joe American expat living abroad, your financial life will be a nightmare since the US automatically assumes you’re some rich tax evader. Good luck opening even a basic bank account while abroad.

It’s easier for a non-American to create an anonymous shell company inside the US than it is for an American exchange student to open a bank account while abroad.

> If you were to believe popular media narratives, rich Americans would be the number 1 client of most of these firms.

Not my expectation exactly because

> The US has relatively low capital gains taxes

This is very euphemistic. The US is a maze of tax havens and loopholes. Some states make it easier to launder art, some make it easier to zero-out income taxes and so on. Plus endless tax benefits “for the sake of the economy”.

So congratz to the US on allowing such nasty behavior inside instead of adding a few more contrived hoops to those who wish to evade taxes…

Global taxation.

US citizens pay tax on global earnings. Almost every other country in the world you do not.

Your tax rate for say a UK citizen if you shift from onshore to offshore goes from 40% to 0%. For a US, no change. If you are spending 10k/100k per year to maintain the strucures the motivation is not there for the US.

Philosophically this is interesting as they are taxing residents as well as citizenship, which has a right to residency at any time.

That's not correct for UK citizens. We pay tax on an arising basis on global earnings too.

"When you’re UK resident you’re normally taxed on the arising basis of taxation. This means that all your worldwide income and gains will be taxable in the UK. Therefore, even if your foreign income and gains have already been taxed in another country they will still be taxable in the UK and you must declare all of your foreign income and gains on your tax return."

https://www.gov.uk/government/publications/residence-domicil...

The difference is that a UK citizen can become 'non-resident' by moving permanently abroad and there is a 'non-domiciled' option that is wildly complex legally but allows taxation on a remittance basis.

The US tax code applies to its citizens wherever they choose to live in the world with IIRC no exceptions short of renouncing citizenship.

Or you do the "not normal" thing - which by weight of £'s is the normal thing to do by orders of magnitude - and pay tax on a remittance basis only. The choice is yours, pay tax or keep it offshore and dont pay tax.

You can also become non-resident by moving abroad for a short period of time, no need to do so permanently.

The introduction of the statutory Residence test changed that. If you spend over half the year in the UK, don't have a permanent home overseas as well as in the UK, or work here full time you are resident - and you have to declare all earnings.

Playing domicile and residence games isn't as easy as it used to be.

>Meanwhile, if you’re an average joe American expat living abroad, your financial life will be a nightmare since the US automatically assumes you’re some rich tax evader. Good luck opening even a basic bank account while abroad.

That's not even close to being true. As long as you're paying taxes where you're living (and most foreign jurisdictions are quite prickly about such things), if the taxes you pay to the foreign government exceed what you'd owe the US government, you generally don't have to pay any US income tax[0].

[0] https://www.americansabroad.org/us-taxes-abroad-for-dummies-...

Edit: Apparently, while the income tax situation isn't too bad for expats, the US has reporting requirements for foreign banks that are rather onerous. As such, many American expats have a hard time getting bank/investment accounts abroad, which is what OP was talking about.

That is correct, but you are still not.

Many financial institutions will block US taxable people due to the complications supporting them. Especially if you're a peasant whose support costs will exceed your value to the institution.

Additionally, you must still file taxes every year, and declare all bank accounts on which you are a signatory (under threat of seizure), or for which your spouse is a signatory.

>Many financial institutions will block US taxable people due to the complications supporting time

My apologies. I don't understand the second half of that sentence. Would you please explain?

Typo. Time == them.

Few non-us financial institutions are willing to shoulder the burden of supporting the US Gov. Requirements. So they ask "are you a US taxable person?" "sorry we cannot offer you services at this time".

>Few non-us financial institutions are willing to shoulder the burden of supporting the US Gov. Requirements. So they ask "are you a US taxable person?" "sorry we cannot offer you services at this time".

Gotcha. I poked around online after reading your comment and it does seem that FATCA[0] is causing issues for American expats.

That's a shame. :(

[0] https://www.congress.gov/bill/111th-congress/house-bill/3933...

As a financial institution outside the US, if you have a US taxable customer, you effectively come under the jurisdiction of the US governement, along with all their forms.

I was just shot down by most brokerages in Europe because I'm a US/Irish dual citizen. Interactive Brokers finally said "yes". Meanwhile, every account I have been able to open asks if I'm a US citizen and demands my (US) details - they do this even if you've never set foot in the US before.

Can confirm. My son was born in the US (and still holds on to his citizenship), and it has been quite a bit of work to set up bank accounts for him.

Another confirmation here: I, an American citizen living and working in Germany, have been able to get simple checking accounts, but no one will open a regular brokerage or tax-advantaged retirement account for me. However, that's kind of ok, because if I were stupid enough to buy ETFs outside the US market, I’d be in for some spectacular US taxes on them (look up “PFIC”)

However, to top that off, the few brokerages in the US that will openly serve Americans living abroad (Schwab) can no longer allow those of us living in the EU to buy boring index funds or any other sort of ETF on the US market because they don’t comply with the EU’s new customer disclosure rules.

There are taxes besides income tax, though. Capital Gains Tax on your house to give one random example. Things like AMT can complicate this as well, though 2021 is the first year I'll have to find out what happens.

Assuming, puts conspiracy hat on, that the US intelligence agencies aren't the ones behind this leak in an attempt to put pressure on influential people the US has problems with, sprinkled with a bunch of random other people from other countries to make it less obvious what is going. Since the US intelligence agency is forbidden by law from spying within the US, there's no Americans on the list.

> Since the US intelligence agency is forbidden by law from spying within the US

Sure. Are they also forbidden to lie to congress? Or interfering with their own oversight committees?

I have little faith that the law is adequately applied to these orgs.

The US is a tax-haven, with many states competing to be the most attractive haven.

My country, which isn't a tax haven, get's branded as one (with significant penalties) by the EU, while actual tax havens like those in the Pandora Papers, and USA, are given a free pass.

https://www.theguardian.com/news/2021/oct/05/eu-action-again...

Why would a US citizen put their money in an offshore tax haven, when there are plenty of on-shore tax havens/"privacy jurisdictions".

In many signup flows for non-US financial services (bank, exchanges, crypto) one of the first questions is “do you have an US citizenship?” If you have, you cannot become a customer.

I wonder how the tax treatment for investments is in Panama.

How much of the 30% US withholding taxes on Dividends from US-equities can be claimed back?

If you can't claim back anything, then it is probably not worth it just because of that.

The US taxes the global income of its citizens, and has punitive taxation for "foreign controlled" investments.

You'd never want to open an investment account in Panama due to these rules (and you'd have a hard time opening an account there in the first place).

You could invest in Panama through US domiciled funds (or a US company), but then of course you're still paying US taxes on everything.

The US is the only country on earth with the power to actually enforce a draconian global tax scheme on its citizens, due to the US dollar being the global currency. If you don't comply, the US treasury shuts off your access to the US dollar.

Eritrea (small African nation) is the only other country with global taxation, but they have absolutely zero power to enforce it.

It occurred to me in the wake of the release of these Pandora papers that mass availability of tax avoidance could be one way of shutting down (almost) any availability thereof. Worded cynically: bring tax avoidance to the middle class and the poor, and it'll be shut down promptly.

In the end I don‘t see how hiding value somewhere can be stopped without total surveillance.

Maybe we are getting there.

End corporate taxes and all of a sudden the whole scheme becomes unnecessary.

Wouldn't you have to rescind the concept that corporations can act as individuals as well?

I'm not sure whether this is a legal, moral or philosophical position but in the spirit of no taxation without representation then it seems right that all political lobbying by corporations would have to be ended as well.

They can’t act as individuals. This is a falsehood perpetuated by people who want to make witty hot takes.

God damn the Supreme Court and their perpetuating of falsehoods with witty hot takes.

The Supreme Court has never ruled that corporations are people. They ruled that corporations have 1st amendment protections. But yes, that was exactly the type of substance-free hot take I’m talking about.

> The Supreme Court has never ruled that corporations are people.

“Under the designation of ‘person’ there is no doubt that a private corporation is included.” Pembina Consolidated Silver Min. & Milling Co. v. Pennsylvania, 125 U.S. 181 (1888).

Among others. That corporations are people has never really been substantially in dispute (legal personhood is fairly expressly the central point of the corporate form as an innovation where partnerships already existed), though whether particular references to person, persons, or people in the law are intended to refer to all legal persons or only specifically to natural persons is sometimes in dispute.

Yup, that sounds like the perfect solution to the problem of companies not paying enough taxes

Companies were never supposed to pay taxes on their profits, they were supposed pay dividends which are then taxed as income. The desire to tax that profit twice (or 3 times if you count consumption tax) is what creates this whole mess, because you fundamentally can’t force a company to make a profit.

The outcome of trying is a tax system that only applies to SME.

Corps don't pay taxes, their customers do in the form of higher prices.

In case of the land locked EU micro states, a blockade would be an obvious way.

Rather surprisingly, I can't seem to find a lot of historical examples of, say, German trade unions completely blocking Liechtenstein, demanding a fairer taxation system.

I firmly believe that for any meaningful change in tax exceptions for multinationals one needs to bring it to the masses, like you say.

For example by creating a multinational entity that swallows you all the small shops, while letting them be the owner as they were before. But they now use a service that consistently costs so much that it's not returning a profit. While they also start a new business through a foreign Enterprise that is stationed in any tax Haven you have your eyes set on. When on scale this will drain the tax income of most small shops and must force the government to shut down these constructs. Challenge being that in doing so the precedent crested will also force the multinationals, like Shell, Unilever, etc. To shut down their unfair tax advantages.

I don't think the idea is novel, and I think it's extremely risky, but something worth chasing I believe.

Stepping sideways from the multinational revelations of the Pandora Papers, as a US citizen I'm floored by how much tax abuse comes from organized religion and how little we seem to be concerned by it.

I've considered creating my own church for along the same reasoning you describe. If I can make a Mary Mag Was Actually Jesus Church with minimal effort, and the end result is I get to play the same game that corrupt ministers do, shouldn't I ethically do so? There's good and bad about it, and I leaned towards no. But maybe the problem is it's unethical if too few people do it. If I scale it up, does it become ethically different?

Say TurboTax starts providing any Joe Schmoe the chance to click a few buttons and handle all the hard things to establish his new 'church' is a legally tax-exempt financial vehicle on religious grounds. What would come of it? Would it accelerate the good or bad?

The issue with mandatory taxation is that the powerful in society will always corrupt the system somehow to pay what they are happy to pay (paying taxes or doing charity can be good investments reputation-wise) while everyone else will have to pay "their fair share".

As soon as everyone start using loopholes they will simply lobby to make it harder, to keep the powerful safe and everyone else paying. From anecdotal evidence, I'm pretty sure the religious route you recommend won't work.

The only way to make things fair in terms of taxes would be to have zero mandatory taxes. With zero taxes there is no-one benefitting from corrupting politicians. Career politicians would not exist anymore because there would be no more money in it.

Without taxes you're left with the problem of organising society without a central entity, eg. by having private police and protection, private healthcare, private education, private roads and by supporting those without means through voluntary charities instead of mandatory taxes.

I do not think that this will work. Unless people actively force them not to, they will shut down this door and they will build a new one for the elites to continue their business as usual.

Your core problem is the rich mostly owns both parties and most of the media that can blast propaganda to the effect of:

* It's simply Not Possible to fix the problem of widespread tax avoidance because There Will Always be Loopholes.

* In any case if you tax the wealthy too much they'll run away with their money which will be worse in the long run and the government can't stop them and Then You'll Be Really Sorry.

The public can't really be trained to believe that tax havens are ok but maybe 70% can be led to believe the lie that theres nothing that can really be done about them so they dont demand politicians fix it while a good 40% are susceptible to persistent character assassination on politicians who do try to fix it (e.g. https://www.foxnews.com/politics/aoc-ethics-complaint-met-ga...)

Trying to convince Bahamanian lawyers to charge less than a million dollars for setting up elaborate tax structures that Congress winks at because their donors like them isn't really a viable fix. A) they won't B) if they did that particular method would be shut down and theyd shify to others because the core problem of "Congress doesnt work for you" hasnt changed.

France started heavily taxing some rich people, and some of them like Gerard Depardieu promptly 'immigrated' to Belgium (A whole km outside France in his case). As far as I know, France did not suffer too much from this.

https://jonathanturley.org/2012/12/12/french-government-deno...

Given most countries tax their residents as opposed to their citizens, I say let them leave and they forfeit their right to be residents.

In the case of the US, where they tax both their citizens and their residents. If you want to leave and not pay, you forfeit the residency and the citizenship.

How do you mean? He's obviously a resident in Belgium otherwise he'd be paying French taxes? If he moves back to France he'd become a French resident again or if he in practice spends more days of the year in France than in Belgium, then he'll be treated as if he's a resident in France.

Yes. He had to move to Belgium to remove the obligation to pay tax in france. Should he decide to move to the south of france instead, he would come back under the taxaction of france.

As far as I remember they acted like Depardieu and his ilk leaving couldnt be tolerated so they rolled the law back.

I didnt follow too closely though.

Isn't Depardieu a resident of Saransk, Russia?

> In any case if you tax the wealthy too much they'll run away with their money which will be worse in the long run and the government

I saw companies leaving countries for tax reasons.

I see people working 80% instead of 100% because thanks to progressive tax their net salaries remain 85+%.

Of course tax laws also factor into life decisions.

This does hit home. My significant other got a 600€/month pre-tax raise. Her net raise? 120€. She could actually go work 80% and hardly lose anything at all.

I did that for a while just because. Three day weekends are nice even without the rationale of progressive taxation.

Overall I'm not sure if a tax that encouraged it would be such a bad thing. It's obviously against the protestant work ethic which makes it seem almost unthinkable in America but it'd probably be healthier overall.

There was a NY law that raised state taxes quite considerably on high incomes followed by a study to see if people responded to this by moving across the river to live in New Jersey where taxes were lower. Turns out they couldnt be bothered: https://www.nakedcapitalism.com/2011/02/quelle-surprise-tax-...

A legion of people uprooting their entire life in response to a tax hike is threatened constantly in the MSM but pretty uncommon in reality.

On the other hand companies that can change their tax residency just by saying "this is our new HQ" will yes, seek out tax havens because there's almost no cost to "moving". With political will, it would be pretty trivial to enact legislation to say that the company gets taxed based upon where they actually are.

As to why that doesnt happen see my original point: A) Congress doesnt work for you B) the media acts like you could never really close these loopholes.

This is a global issue, and Americans make up < 5% of the worlds population. Who are "both parties"?

> Worded cynically: bring tax avoidance to the middle class and the poor, and it'll be shut down promptly.

This already exists in certain places and under certain conditions. Several EU member states offer very generous tax rates provided you make under a certain sum and meet other (fairly specific) criteria.

Parliament elections in Czech Republic will start in one hour. I wonder if results for current PM Andrej Babiš will get affected by his affair regarding Pandora papers. But his voters are totaly brainwashed and beleive that Pandora papers are fake news crafted by Czech interrest groups with sole purpose to impair his election score.

I can see that having absolute idiots is not an exclusivity of Brazil.

> Prime Minister Babis and his populist ANO party had sought re-election on Saturday after four years in power. But they were beaten in the poll by the centre-right coalition Spolu (meaning Together), which took 27.8% of the vote compared to ANO's 27.1%.

I copied that from a [BBC article][1]. It seems that election didn't go well for him.

[1]: https://www.bbc.com/news/world-europe-58863671

ANO actualy got more mandates (chairs) than Spolu, due to some system which gives different weights to votes from various districts. However most likely he will not be able to get 50% needed in order to accept new laws, since all his possible partners were defeated as well. (including communist party, which for the first time in exactly 100 years didn't make it to the parliament)

1) I am happy NPR have covered this and many subjects well over the years, here they are calling back to their 2012 work on the subject.

2) I am sad that despite the comprehensive coverate of the subject the 'revelations' are a shock to people.

Can someone on HN setup a startup which offers a website where normal people can setup a company/bank account in a tax haven completely online so that the rest of us can have the same advantages as rich people.

I'd gladly pay $5/mo for that.

I genuinely have no idea - is this legal? Would this be tax evasion or just tax sheltering?

Depends on the jurisdiction where you physically reside, but most likely your country can claim the offshore company is actually a company based in your country of residence and tax it accordingly.

If you have employees offshore, a director offshore, quarterly shareholders company meeting offshore and the income is not coming entirely (or, even better, not at all) from your country of residence, then maybe it will be just sheltering (subject to the laws in your country of residence that can change at any time).

I've been thinking of setting up a company in a low tax location (non blacklist, maybe 5-12%), receive payments for a group of contractors working with foreign companies in high tax jurisdictions (think, living in Spain for a US or UK company) and then keep a ledger of payments received, expenses and money paid out. Company shares could be granted among the contractors and the manager of the company based on how much the contractors brought into the company and invoices for work (and dividends) could be paid to the contractors who need some money to live. The money left in the company could be invested for the contractors in whatever they prefer. After a decade working and saving outside of your expensive jurisdiction you could move to some tax friendly location (Dubai, or Portugal under the NHR scheme) and extract all the profit you made over your career.

If the contractors were all shareholders and going to shareholders meeting in the offshore location, there may be enough substance to keep tax collectors at bay and having multiple people bringing income would make it hard for the authorities to claim they could tax the offshore company as a national company.

The price to pay would be trusting the managers of the company not to run away with your money and to respect the contract.

I don't know about fully online, but I've seen ads in business-type newspapers ( think FT, but local) for this type of service years ago.

And you can do that (almost fully) online with Estonia, but I'm not sure they can be considered a tax haven.

If your country of residence is competent enough to find out, you'll likely be in trouble.

Hire a local accountant and tax lawyer and they will tell you how. When I set up my business I had the accountant and lawyer discuss set up options. They were going through share structure etc and providing examples of how to take advantage of things to lower my taxes. I made an offhand joke about setting something up off shore and the lawyer flatly said "You need to make $xxx in revenue before that is worth while". It was somewhere around 2 - 3 Mil.

I'm not rich, that meeting cost me $1200 and the outcome was a legal document incorporating my company with all the different things we discussed.

I can not imagine what is available once you hit the 3 million mark and beyond.

The way I understood it, correctly setting up an offshore company for tax avoidance is expensive -- there's no benefit unless you are already a multi-million $ company. This is because you actually need a presence (including employees) in the haven country. So if that presence costs more than the tax you're hoping to avoid, then it's a net loss.

This presence is often an entry on a building directory and a registered agent willing to accept official papers (where that directory and that person serves as the registered agent for hundreds of companies).

It’s still costly, but you only need a fractional “employee” not employees plural in many cases.

Mods please mark this as [audio] and perhaps [2012].

2012...

FTA:

> Note: This episode originally ran in July 2012.

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