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| Earn Up
To $80,000 Abroad Tax Free - Keep The Rest in an IBC |
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| A New Concept In Offshore
- The Foreign Earned Income Exclusion Coupled With Offshore eCommerce |
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| In
this issue of the Offshore Real Estate Quarterly we have two articles that
refer to running a 'service based' business abroad. In those articles we
discuss operating an Offshore
Serviced Office & Call Center. In one of those articles we
mention the Foreign Earned Income Exclusion for US citizens earning income
abroad. This Exclusion, allows any expatriate American to earn $80,000
tax free. The $80,000 exemption for foreign income is of interest to the
expat who does not want to sever ties with the US. |
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| According to the IRS,
your tax home is specified by where you work and not by where you live.
If we lived in Mexico and drove across the border each day to a job in
the United States than we would not qualify for the $80,000 exclusion. |
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| Further,
if we work and live outside the United States, but we maintain a residence
inside the United States; the IRS construes this to mean that we are disqualified
from the exclusion. In order to qualify, we must establish both a
principal place of business and an absolute residence outside of the United
States. For someone who maintains their US citizenship to qualify for the
$80,000 exclusion they must have their primary place of residence outside
of the United States. To pass the IRS test on this issue, we must
be outside of the United States for 330 days out of every 12 consecutive
months. We have heard that the IRS actually has a number of rules
for counting days. If we are to use the $80,000 exclusion we must
learn the IRS rules and comply with them. If the taxpayer prefers,
the IRS is also willing to use a subjective test, rather than counting
the days to determine foreign residency, but it involves so many personal
questions that we’d have to be a total fool to consider it. It involves
questions I wouldn’t tell a Priest or a Rabbi, let alone some young kid
with an IRS badge trying to act like Dick Tracy. |
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| If we are
self-employed there are additional tax exclusions. For self-employed
individuals it is net income that is applied towards the exclusion limit
and not gross income. One can get housing deductions, use more than
one offshore residency and claim both as exemptions, self-employment benefits,
and so forth. |
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| This can also
include: rent, utilities, insurance, lease fees, rent for furniture and
accessories, repairs, parking fees, employee payroll, and whatever operational
expenses you deem appropriate to include. |
| Reducing
Taxes To Zero |
| There is another
way to make more than $80,000 net and still reduce our taxes to zero. By
using offshore eCommerce coupled with a Panamanian International Business
Corporation (IBC,) we can make any amount of money into the IBC and still
keep our tax basis at zero. If we purchase our house in the name of the
IBC, we can rent the house to ourselves, thereby increasing our tax exclusion
by the amount of the rent, which is paid back into our own IBC bank account.
Note that this modality is best used when you earn more than $80,000 net
and cannot move the additional income into your IBC. The IBC acts
as a buffer in this case by reducing the taxes on the amount of income
that exceeds the $80,000. In cases where the majority of income enters
the IBC rather than being paid to you individually, this modality is hardly
necessary. You can live in the house rent free if your entire personal
income is less than $80,000. |
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| In the former
case, where we earn too much personal income, (more than $80,000,) we can
find myriad ways to use the IBC to 'extract' money from our earnings, thereby
lowering that portion of our income exposed to taxes. In addition to the
modality of the IBC buying a house and renting it to us, we can do the
same with a car, a boat, an office building, an airplane, a property management
company, or anything our own company deems appropriate to purchase in its
behalf. The concept of incorporating an IBC and Offshore Web Site with
eCommerce capabilities into an existing business is discussed in the article
Offshore
eCommerce Can Make You Rich - an article which explains how to
couple Offshore Web Hosting and Offshore eCommerce with a typical 'brick
& mortar' business. |
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| An expense
account paid by the company to the individual can include, travel expense,
dining, and a host of other expenses. The fact is, our IBC can purchase
anything it deems appropriate, as long as it is purchased in the name of
our IBC it is not taxable income. |
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| There are
also provisions which exempt offshore workers from Social Security Tax.
There are also provisions which exempt offshore workers from the social
security taxes of the foreign host nation. These provisions are called
totalization agreements. They dictate that US citizens who are temporarily
working offshore are subject only to the US social security tax and are
exempt from the host countries tax. The US has signed agreements
regarding this exemption with twelve countries; they are: Canada,
Belgium, France, Germany, Italy, the Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, and the United Kingdom. We can get around paying local
social security in many other countries by presenting proof that our employment
is temporary and that we are covered by US social security. To qualify
for any of these social security exemptions, US or foreign, we must obtain
a certificate prior to the foreign assignment from the US Social Security
Administration, Office of International Policy, P.O. Box 17741, Baltimore,
Maryland 21235. |
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| Reducing The Taxes Owed To Foreign
Nations |
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| Most countries
of the world tax on the basis of residency (or domicile.) While the
rules vary from nation to nation, most of today’s nations consider anyone
who has established a place of abode inside their country for more than
six months to be a resident. |
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| Here are
our options: If we are working for someone other than ourselves
and if those for whom we work have a policy of paying their employees inside
the host country and of reporting the amount of that payment to the host
government we can try the following options. We can ask our employer
if we can hire on as independent contractors, having them make payment
to our ‘company,’ located in a third nation, rather than to pay us personally.
Our ‘company’ of course will be our own, with its corporate headquarters
domiciled in a tax haven such as Panama. Once payment is made to
our corporation, our corporation can then in turn pay us an amount sufficient
to live on in our foreign host nation, with the remainder of the funds
remaining in our corporate account, just as it is with every other corporation
in the world. |
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| We
personally see little sense in using an exemption from US taxes if we are
of a mind to simply turn around and place ourselves in a position to be
unfairly taxed by a foreign government. Regarding unfair taxation we should
give our definition of fair: fair taxation is a sum paid in taxes to a
government that does not exceed in value the benefits returned in goods
and services by that government to the taxpayer. If as an expat we
contribute to a foreign host country by bringing jobs and expertise, we
add to that countries wealth and evolution. Most countries will be
exceedingly happy with a productive expats presence and why shouldn’t they
be? Few nations pursue taxation with the vigilance and brutality
of the United States. In most nations, tax avoidance is a national
sport. |
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| Not
Self Employed? Not A Business Owner? Offshore Web Hosting Is
Your Opportunity To Become One |
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| Being
self-employed always presents more creative options for us. This writer
recognizes that it is not always possible to be a self-employed business
owner. However, with the introduction of Offshore Web Hosting and
Offshore eCommerce it is now possible for us to quickly and easily start
a second income stream offshore, beyond the reach and scrutiny of monetary
predators. This modality is explained in full in the article eCommerce
Can Make You Rich - an article that includes various ways to find
a product to sell offshore. Offshore Web Hosting is the first method
of preventing taxation before it happens, rather than hiding at after it's
levied, and for that reason, as well as its low start-up costs, everyone
should give it several tries until they hit on the winning combination.
I personally know of hundreds of success stories that have proved to me
beyond any doubt what a perfect way it is to break free and live free.
It is the most inexpensive way to open a business in modern history, in
addition to the fact that we are talking about a global business with 100%
profit on the earned income due to the zero tax base of Panama. |
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| Coupling your
Offshore Business with an existing business, or a brick and mortar business,
gives us the best of both worlds. It allows a great deal flexibility, pure
privacy and an amazing ability to operate tax free. It is an excellent
example of synergism. |
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| Essentially,
by owning a Panamanian IBC and operating a business from most locations
worldwide we can get by with minimum taxation at the very least, and zero
taxation with creative structuring of our affairs. Picking a location
to do business is crucial. If your company picks your location for you,
it makes the situation more difficult, but not impossible. |
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| The
more money that flows into your IBC, the less that is taxable. Use
of the IBC as an interface to purchase commodities for company use is an
excellent modality of having our cake and eating it too. A Panamanian IBC
can own anything, invest into any market in the world, own gold, real estate,
(including a house in the USA,) a diamond mine, a yacht, a race horse or
an entire island. As long as the individual does not take the money
as personal income it is not taxable, and as long as the IBC is Panamanian,
no government in the world can scrutinize the affairs of the IBC.
An IBC spells privacy. This new paradigm of Offshore eCommerce coupled
with Offshore Web Hosting, adds a new dimension to making a tax free income
no matter where we live. |
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| For
ways to incorporate an IBC and Offshore eCommerce into an existing business,
see the article - Offshore
eCommerce Can Make You Rich - |
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