Offshore Tax Avoidance

Most people who take the time, spend the energy and swallow the fees associated with securing a functioning offshore credit card, do so with the intent of legally avoiding taxation, known as "tax avoidance", or illegally avoiding taxes, known as tax evasion.

As far as the U.S.'s taxation authority, the IRS, is concerned, offshore credit cards are legal and a right of US citizens to own, maintain, and use them -- much like offshore bank accounts. However, they go further in an opinion letter to state that they believe the "average" citizen has no purpose for owning (much less using) an offshore credit card, and chances are the use of one will put you under the microscope.

So how would this supposed offshore tax avoidance take place and how is it aided by the use of an offshore credit card.

Well, it depends on the individual's situation, but I'll attempt to outline a couple of cases to give you a clearer idea and hope you can extrapolate from there :)

Primarily it comes down to the moment of taxation. Broadly speaking, corporations are taxed periodically (often monthly, quarterly, or annually) based on net earnings. In addition, they can be taxed in the case of a liquidity event a sale or a time when the asset in question (perhaps the entire company in this case) legally changes hands.

We wil deal with the first case, first.

In the case where the company has ongoing operations and is booking revenue and expenses, most modern corporations are taxed as a percentage of net income. In this common case, it becomes a game to lower TAXABLE revenue or raise allowable expenses to the point where the organization pays little or no taxes.

So, how is this accomplished?

Three or four standard techniques are employed (among others) which I will mention here, and cover in more detail in later posts.

1.) offshore factoring

2.) captive insurance programs

3.) back to back loans

4.) rebilling

Offshore credit cards play a role primarily in cases where periodic or occasional payments are moving back and forth between an "offshore" location and one onshore -- or in cases where money needs to be accessed easily and cost effectively.

Factoring and back to back loans are the most obvious techniques where accessing money over time is a major factor in dealing with the admistrative hurdles to implementing such a tax avoidance strategy.

For those unfamiliar with the costs and benefits of offshore factoring and back to back loans, as I said earlier, I will attempt to cover those and rebilling and captive insurance in a separate post.

Offshore Credit Card Applications

Offshore Credit Card Applications



The first time I filled out an offshore credit card application, it was a bit daunting. I think they probably asked for less information when the FBI cleared me for top secret information in the military.



Mother's maiden name??? How is that relevant?



In addition, although the offshore bank was in a protected jurisdiction in a place with strong bank secrecy, the credit application I had to kind of assume (hope pray) would stay private to the issuing bank.



One thing to be careful of is that many of the banking institutions and non-banking institutions that sell offshore credit cards which give you access to your offshore funds in the comfort of your home country are not actually issued by the offshore bank or offshore financial company in question.



So, is an offshore credit card really an offshore credit card ?



Well, the answer, like so many things is, it depends.



It depends on who is actually issuing the credit card...more on that in another post. For now, let's prepare you a bit with what you'll be faced with when you get an offshore credit card application to fill out.



Personal Information

Family Info

Work Info

Investing Info

Portfolio Info

Source of Funds

Savings

Etc etc etc etc.

While sharing this information may be quite daunting to begin with, you can take comfort that there are still some banks that have strong enough bank privacy laws entact where these things *should* be held back from tax authorities and other people who you'd like to shield your financial information from.