The worldwide FX markets are booming and fortunes are being made and lost everyday. However, the US government has pushed most of us Americans to the sidelines. It’s quite difficult to get a leveraged FX account in the US. Here’s how to invest in FX currency trading offshore.
The first step in moving offshore is selecting your FX brokerage. My personal choice is Xenia in Cayman Island. They offer a solid trading platform and a wide range of currency pairs. I also like the fact that they’re actually located in a quality jurisdiction like Cayman.
By “actually located,” I mean that the owners are living in Cayman and the business is operated from Cayman. They’re a real part of the community and not just renting a PO Box on some island that they couldn’t find on a map.
Of course, there are many FX currency trading firms offshore. The best choice for you will depend on your investment objectives, preferred platform, volume, etc.
Once you have your firm selected, you will want to form an offshore company to hold the account. Most offshore providers will need an entity set up before they can open an account for you. This is especially true for US persons.
The reason you want to select your firm before your country of incorporation is that they all have different preferences. They all have their own lists of approved jurisdictions.
You’ll find that the lowest cost jurisdictions are Belize and Nevis. But, many brokerage and FX firms don’t accept these jurisdictions.
The most commonly accepted zero tax jurisdiction is Panana. Panama has become a major financial center and is a respected country for corporations and foundations (a hybrid between a trust and a holding company).
If you select Xenia, we can tell you where to incorporate. If you select a different offshore FX currency trading firm, they’ll give you a list of approved countries. We can tell you which are zero tax and most efficient on that list.
Another factor that will affect your country of incorporation is the source of funds and your need for asset protection and estate planning.
As for the source of funds, if you are using personal after tax savings to fund your FX currency trading account offshore, and don’t need asset protection or estate planning, you can go with the lowest cost option.
If asset protection and/or estate planning are important to you, then you’ll want an offshore trust or a Panama Foundation. The most popular jurisdiction for international trusts is the Cook Islands. They were the originators of the asset protection trust and still the best providers in the market.
If you’re using retirement money to fund an FX currency trading account offshore, the analysis is very different. You’ll need to setup a single member offshore IRA LLC which is owned by your retirement account.
You will be the manager of the LLC and responsible for making the trades. You’ll also need a US IRA custodian who’s experienced in offshore structures. We recommend Midland and NuView, but there are many quality providers.
Those trading fx currencies offshore in their IRA will find a major tax benefit available offshore.
When you trade using leverage in the United States, your profits are taxed as Unrelated Business Income Tax (UBIT) before reaching your IRA. UBIT is taxable at about 35% in the United States.
For example, let’s say you get 50% leverage in a US FX account owned by your IRA. Half of your trading profits for the year will be considered UBIT and taxable at 35%. The other half that’s not attributed to leverage will flow into your IRA tax free.
To be clear, UBIT is caused by your using leverage to trade… not from the fact that you’re trading fx currencies in your IRA. You can eliminate UBIT from leverage by trading FX offshore and in an advanced structure.
If you form an offshore IRA LLC and a UBIT blocker corporation, and trade through an offshore fx brokerage, you will pay zero UBIT. For more on this, see: Eliminate UBIT in Your IRA by Investing Offshore.
Once you select your FX firm and select your structure, you’re ready to begin trading currencies offshore. In most cases, you won’t need to open an offshore bank account. You or your US custodian should be able to wire funds directly into your FX account offshore.
I hope you’ve found this article on how to invest in FX currency trading offshore to be helpful. For assistance in setting up your offshore structure, please contact us at info@premieroffshore.com or call us at (619) 550-2743. All consultations are free and confidential.
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