Confusing Offshore Planning With Income Tax Avoidance

A client who owns a large motor vehicle distributorship in Central Florida asked me about setting up an offshore company. I often establish offshore limited liability companies in Nevis West Indies for asset protection purposes. When I asked the purpose for this offshore entity, the client said his company has several hundred thousand dollars of receivables which he proposed to sell to the offshore entity at a discount. When the receivables were paid the offshore company would make the profit; the client assumed that profits earned offshore were not taxable to his U.S. dealership or to him personally.

This is another example of a businessman who confuses offshore planning for asset protection with tax planning. Offshore companies when properly used do not shield taxpayers from income taxation on money earned by a company operating in the United States. What this taxpayer had in mind was not tax planning but criminal tax evasion. I reminded the client that he owned and operated a visible and very profitable business which would always be on IRS radar. I encouraged him not to risk his business success to save a few tax dollars. Fortunately, he appeared to appreciate the advise and guidance.

There are no secrets in proper offshore asset protection. All asset protection should be clearly visible. Most importantly, no one should used asset protection techniques, and specifically offshore planning, to save income taxes.