Despite what the media would have you believe, there are numerous legal and legitimate reasons to use an offshore company.
In the past, those who dealt in offshore circles used fake names and fake stock photos as they sought to represent the arguments for the true value and purpose of international diversification from the shadows.
Their masked approach didn’t do much to help the reputation of offshore activity.
One of the reasons I began Nomad Capitalist was to bring more transparency to an industry that was unnecessarily secretive. And it seems that we have inspired people to become a bit more transparent.
Obviously, some people are still skeptical. Decades of bad press take time to overcome. But the good news is that there are many legal reasons to be involved with offshore activity like foreign investments, offshore banking, second passports and, yes, even offshore companies.
I came across a presentation recently by one of the do-gooder tax folks where they broke down the reasons for forming an offshore company into three areas: red – harmful, yellow – challenged, and green – ordinary.
Their point was to discuss what parts of going offshore are morally acceptable and which are, indeed, shady business.
While I found the chart intriguing, I found their moralization of the topic a bit unconvincing.
There’s an old saying that asks, “Is it legal? Yes. Is it moral? Ask a bishop.”
The problem with turning the debate about offshore into a list of what is moral and what is not is that you can slip into too many gray areas. I like to think in black and white – legal vs. illegal – and let the moralizing take second chair.
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I didn’t agree with the qualifications set out by these do-gooders. Their moralizing was different than mine. And your set of rules may be different from mine as well. Laws, on the other hand, are definitive. It is clear which side of the line you are on, and clarity like that is vital to good business.
Where I agree with the do-gooders is in their argument that, for the average small business owner, consultant, cryptocurrency trader, etc. there aren’t a lot of ways to reduce your tax burden if you own and operate your business in the United States.
And even for those for whom there are ways, it’s rather complex. The bottom line is that you can’t just stay in the United States 365 days a year and benefit from an offshore company. People think that all they have to do is set up a BVI company and they can run it from the US and avoid taxation.
That’s nonsense.
In fact, in many cases, it will make their tax situation worse. These days, real offshore solutions are about finding ways to move your a**, not just your assets.
Moving your assets used to be enough in the days when hiding your money was the name of the game. Now, however, it’s all about transparency and how both you and your business can think globally to reduce your tax burden and get other benefits.
One of the underlying principles of my five magic words is that none of us chose where we were born. Simply because you were born in the United States, Australia, Canada or wherever else does not obligate you to live there forever.
You can go where you’re treated best.
And if you’re not sitting around using all the resources in the United States – if you legitimately move what you’re doing and move yourself for a good part of the time outside of the United States – why should you pay tax as if you were still there?
You shouldn’t be forced to pay anyone just as some homage because you were born there.
Again, if you stay there and keep milking all the services and screw everybody else by getting out of taxes, that’s not really fair.
It also isn’t legal.
So, while I don’t agree with the moralizing approach to the offshore discussion, I do believe in drawing a line and staying firmly on one side. It is either legal or illegal. I’m not here to judge, just to tell you where the line is.
However, other people will still judge, which is why I help the people who come to me to understand how to present their strategy to the people that matter – their bank, for example.
Tax guys are great at telling you where the line is, but they also don’t have much, if any, experience with the bank itself. They do not know what the bank wants, only that the bank should take your company… in theory.
But how you present your story still matters.
Even if you are doing something completely legal, you have to be prepared to explain it to those who remain suspicious of offshore activity. And that’s where having a plan becomes so valuable. Even if you have a totally legal offshore structure, the onus is going to be on you to show legitimacy.
So, let’s look at all the possible reasons for using an offshore company for your business and, where necessary, discuss how those reasons fit into the bigger story you will have to paint to show the legitimacy of your offshore activity.
