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As the editor of Invest Offshore, I've had the privledge of working with a brilliant team of offshore advisors. Our mission is to help you improve your lifestyle, by sharing information and networking with unique experts. The purpose of this communication is two-fold; regain soveriegnty to live overseas, and increase asset protection through global diversification.

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Aaron A Day

This article highlights the benefit of holding a foreign investment account that is structured by means of retirement plan laws that are IRS recognized and specifically mentioned in the Foreign Account Tax Compliance Act (FATCA), Double Tax Treaties (DTA) and Tax Information Exchange Agreements (TIEA). None of these acts, treaties or agreements mentiontrusts (revocable, irrevocable or foreign), life insurance products (including private placement life insurance or private placement variable annuities) nor other structures.

The U.S. Tax system is generally hostile to foreign financial structures if there is a U.S. taxpayer or U.S. beneficiary involved. When going offshore, the IRS wants to know what assets are leaving and why? The hostility is understandable-foreign structures interfere with the government's ability to impose and collect tax. If the IRS considers that if the 'assets'' you have offshore has as its only purpose the reduction of current taxes, they will disallow it. A foreign retirement fund has a registered purpose.

This foreign retirement fund requires reporting on two forms only - FBAR and IRS Form 8938.A US person having passive foreign income must file IRS Form 8621 (PFIC) and/orForm 5471(Foreign Corporation tax form for offshore IBC or LLC). The IRS considers this foreign income to be fully taxable and non-reporting of it tobe tax evasion. Foreign trusts are required to file IRS Form 3520. The IRS wants to know what you are doingand moving assets''offshore''typically provides no U.S. tax advantage. Foreign PPVLI life insurance policies are subject to U.S. person constraints because there is no IRS connected regulator to maintain US tax compliance. Foreign policies are always in jeopardy of an audit because the tax free withdrawal benefit of the non-MEC policy are only available until the extensivenon-MEC rules are broken and then lost forever.

The overseas landscape has walls of obstruction that constrain US Persons

No FATCA compliant foreign financial institution will open an account other than a cash or physical metal storage account for a US person or US person beneficiary (other than a bank of the overseas employer for the employee income). No offshore brokerage will open an account for a US person. Foreign private banks and/orwealth managers will open an account only to receive millions. Since FATCA rules have been enacted, it is not possible for a non-resident USA person to open a bank account in the USA for an LLC, IBC or other business account. Many USA banks and brokerages have written letters to non-resident USA persons asking them to close their accounts.

Eliminating U.S. person constraints and rejection overseas can be best achieved by means of an IRS and internationally recognized 402(b) foreign retirement fund. There are no US person restrictions, walls or rejection because the members segregated investment account is opened by a Regulated, Registered and Recognized Foreign Retirement Plan Fiduciary with the purchasing power of 11 billion USD in member assets. Pension law is recognized in Common, Civil and Sharia law countries and is regulated by government and registered by governance in mutual respect to provide citizens safety, security and survivorship which are all protected by law.

IRC 402(b) is Foreign Account Tax Compliance Act (FATCA) and IRS compliant:

This 402(b) Foreign Government Regulated, Registered, and Recognized Retirement fund is FATCA Compliant. This 402(b) is not subject to FATCA withholding. FBAR is filed at the highest annual value and IRS Form 8938 is filed as ''Zero Value''. The investment account has worldwide access to investments without U.S. Person constraints. Investments registered in foreign countries, which are 2/3rds of the worlds registered investments, are accessible as are U.S. registered investments. All are accessed under the terms of business of a registered foreign retirement fund.

Other foreign financial structures such as partnerships, corporations, IBCs, trusts, estates, funds, non-compliant life and annuity policies, stock in foreign corporationsand any pass thru entities may be subject to enforcement of up to 60% withholding on transfers.

The most consequential part of the FACTA legislation is the severe penalties that the law imposes on foreign financial institutions that are found not to be in compliance with new mandated reporting on financial activity of their U.S. clients. Foreign financial institutions not complying with the rigorous reporting requirements will be subject to a 30% withholding tax on all U.S. sourced payments.

It is important to understand clearly what this implies: any financial institution anywhere in the world not voluntarily complying with FATCA will find that 30% of any U.S. sourced payment (e.g. Microsoft dividend, maturing principal payment from a U.S. corporate or government bond) will be withheld. Because U.S. stocks and bonds are so widely owned globally, virtually all financial institutions everywhere in the world currently receive substantial U.S. sourced payments, mostly on behalf of their clients who have no connection to the U.S. Allowing 30% of these payments to be withheld will not be an acceptable option. Additionally 30% of any funds sent from the USA to a non-compliant financial institution will be withheld by the U.S. financial institution. That means a potential 60% withholding on to and from transfers.

IRC 402(b) is Not a Passive Foreign Investment Company (PFIC)

Partnerships, corporations, IBCs, trusts, estates, funds, non-compliant life and annuity policies, stock in foreign corporations and any pass thru entitieshave income, dividends, interest, gains from sale and/or exchange of investment property (including commodities). The income that the trust derives from its sales of physical bullion is expected to be treated as passive income for this purpose. Since substantially all of atrust's assets will consist of physical bullion and the trust expects to derive substantially all of its income from the sales of physical bullion, it is expected the trust will be treated as a PFIC for each of its taxable years.

There are IRS special tax filing forms required from Passive Foreign Investment Companies (PFIC) which are charged tax at the highest rate on any income from interest, dividend and capital gains realized within the company; foreign IBCs and most trusts can be considered to be a PFIC. The cost of required accounting/record-keeping for reporting PFIC investments can easily run into the thousands of dollars per investment year. Form 8621 (PFIC) must be filed every year for each separate PFIC. Tax filing of a PFIC is extremely complicated and often requires a tax specialist.

Enforcement of the PFIC tax regime on investments held outside the United States by persons subject to U.S. taxation has been lightor non-existent, even though the PFIC tax rules have been around since the 1980s. This is because enforcement relied entirely on self-reporting. Until now, the IRS has had no independent way to verify the nature of offshore investments held by Americans and therefore was severely limited in its ability to enforce PFIC reporting.

The new FATCA law completely changes this since reporting is now required by foreign financial institutions. Any financial asset held by foreign structures (e.g. trusts, corporations) which have US person "beneficial ownership" will need to be reported by the financial institution to the IRS. Clearly, Congress intends one of the effects of the new FATCA law to be enforcement of the PFIC rules.

What About a 402(b) Guarantee

I have heard people respond to our solution that ''this is too good to be true'','' why has my advisor never heard of it'', ''why have I never heard of it'' and ''what about a guarantee''.

It's been around since 1986; the only reason it has become relevant is because with FATCA, the IRS has woken up to the fact that there is a big wide world out there. There are a lot of people who are involved with pension plans these days that back in 1986 when the 402(b) became law, or indeed in 1974 when ERISA arrived, they just wouldn't have dreamt of working or living outside of the USA...it was just not something that people did then but they do now.

The second question ''Why have my advisors never heard of it?'' is that there is no reason for your advisor to have ever heard of it. US advisors do not study this area of law and consequently, do not advise on foreign retirement plan law. However, there are some big international firms that have dealt with these laws for years and can be consulted. Finally, as to a guarantee, it is all laid out for you in the law; you see this in IRS Code, Rulings and Guidelines and also in US Treasury commentary as well as the IRS and Treasury commentaries on FATCA as it is specifically recognized - foreign regulated, registered and recognized retirement plans are exempt.

While you can have a 402(b) foreign plan with a foreign custodian, you can also have a custodian in the USA.

A further benefit is tax deferral is achieved because the contributions as well as the accumulations of income and gains on the contributions, are never vested in the member, not by contract nor by US law. This specific IRC 402(b) is excluded from probate, inheritance and estate tax and has statutory legal asset protection that is not subject to claims, counter-claims, new parties joined, summons, discovery, depositions, interrogatories, nor court judgments.

Conclusion

FATCA has changed the financial and tax environment for Americans working,living, or investing abroad. These changes cannot be ignored. As a result of FATCA, many old and new rules regarding assets held by Americans outside the United States will be enforced to a far great degree than they ever have been before. The IRS, for the first time, will have easy access to information about these assets. The good news is that these changes will prompt many Americans to take steps that address these new concerns.

Investment Description

Structured Notes linked to a selection of US Product Technology Stocks. An investment providing fixed levels of income of 8.5% p.a. over a 2 year horizon, and linked to the performance of US Smartphone Stocks.

NOTE: closing September 12, 2013

Issuer: Royal Bank of Canada, one of the highest rated financial institutions in the world (AA- rated)

Key Features

• Available to investors seeking fixed income of 8.5% p.a., over a investment horizon of 2 years with a defined equity risk
• Regular income payments, made on a quarterly basis (2.125%) regardless of equity market conditions.
• Capital buffer: no loss of capital as long as no Stock has fallen below 50% of its initial level when observed on the Final Valuation Date (European barrier)
• The Notes are available in USD, EUR and GBP

Underlyings:('Stocks')

• Advanced Micro Devices (AMD UN Equity),
• Facebook Inc (FB UQ Equity),
• Apple Inc (AAPL UQ Equity),
• Sony Corp-Sponsored ADR (SNE UN Equity),

Key Dates

• Initial Valuation Date: 12 September 2013
• Issue Date: 19 September 2013
• Final Valuation Date: 14 September 2015
• Maturity Date: 21 September 2015

ISIN Codes

• GBP: XS0962806377
• USD: XS0962806294
• EUR: XS0962806534

The Notes are available in USD, EUR and GBP

For Professional Investors Only

Risk Disclaimer: Please bear in mind that investors are exposed to the credit risk of the Issuer. The Notes are not capital protected and investors may receive back less than the original amount invested. The value of the investment can go down as well as up and investors can potentially lose all of their investment. Any secondary market provided by Royal Bank of Canada is subject to change and may be stopped without notice and investors may therefore be unable to sell or redeem the Notes until their maturity. If the Notes are redeemed early they may be redeemed at a level less than the amount originally invested.

Royal Bank of Canada - US Financials Income Note brochure, available upon request.

1. No Direct Ownership. Anyone can create a Nevis LLC, but if you don't structure the ownership properly, it will be easy to discover and attack.  The best way to structure the ownership is to put it in a Special Power of Appointment Trust (or "SPA Trust").  This is a legitimate way to keep the ownership completely off of your personal financial statements.  For more information about the SPA Trust, click here: SPA Trust Provides Better Asset Protection.  
2. No Fraudulent Transfers.  No asset protection plan can be relied upon if you make a fraudulent transfer.  We can design a plan to help you avoid a fraudulent transfer.     
3. No Frivolous Lawsuits.  U.S. court orders are not effective in Nevis.  U.S. contingent fee lawyers cannot practice law in Nevis; only Nevis citizens can practice law in Nevis. Moreover, anyone attempting to sue a Nevis LLC must first post a $25,000.00 bond. After posting the bond, the potential plaintiff must then submit a legal brief arguing why the lawsuit should be permitted. If the court determines that the suit is unwarranted, it will not be allowed to proceed and the bond will be forfeited. Due to these rules, frivolous suits are virtually non-existent in Nevis.
4. No Creditor Wants a Charging Order. Even if a creditor won a judgment against you in a Nevis court, the exclusive remedy available to a creditor against your interest in a Nevis LLC is to obtain a charging order. A charging order means that the creditor gets any distributions which are made, but the creditor cannot ever force a distribution to be made from the LLC. If a creditor does obtain a charging order against your interest, Nevis law would require the manager to send the U.S. income tax liability for your interest (IRS Form K-1) to the creditor, even if no distributions are ever made to the creditor.
5. No Risk from Other Members or from the Manager. Your Nevis LLC will be structured so that no one but you has any knowledge, access or control over your assets. It will also be designed so all the income and deductions from your assets are allocated exclusively to you. We can help you and your CPA understand all tax ramifications, options, and reporting, although the Nevis LLC generally has no affect on your income taxes.
6. No Offshore Stigma. The members and managers of a Nevis LLC are not public record, which provides for complete confidentiality. Also, a Nevis LLC is not subject to the onerous reporting requirements for offshore trusts. Your Nevis LLC can be designed in a manner so that no one has to know that your LLC is registered offshore unless you tell them.
7. No Worries. Nevis is politically and economically stable, they have modern technological infrastructure, major international banks, strict privacy laws, warm Caribbean weather, and really nice beaches!
8. No Way! Lets examine a worst case scenario with a very aggressive creditor:
   • A creditor looks for deep pockets to sue. Because you have on ownership in the Nevis LLC, you do not appear to be a very good target. Many creditors stop right there because of the significant costs of litigation and the small chance to recoup those costs.
   • If the creditor sues you anyway, wins a judgment against you in the U.S., discovers the Nevis LLC, and attempts to attack your interest in the LLC, the manager simply informs the creditor that this is a Nevis LLC, that they do not recognize court orders from the United States, and that they cannot disclose any information about the LLC or its members. Once again, most creditors will stop there.
   • It is possible that an extremely aggressive creditor could hire legal counsel in Nevis, post a $25,000 bond with the Nevis court, and re-try the original lawsuit in Nevis. If the creditor wins that case and seeks a charging order, we could simply change the manager to another jurisdiction (such as the Cook Islands) which does not recognize court orders from the U.S. or Nevis. And the process continues as described above.
   • If a creditor catches up with the LLC and obtains a charging order against your interest in the jurisdiction where the LLC and the manager reside, you can continue to manage your personal LLC, refuse to make any distributions to the creditor, take loans or management fees as needed, and send the K-1 each year to the creditor.

The above article was provided by an asset protection attorney, a tax attorney, and a law school professor. He does asset protection planning that is ethical, professional, efficient, thoughtful, and eminently effective. He will provide ongoing support for any plan that he creates. If you are interested in asset protection planning, call or send an email with a summary of your situation and we will send you a free proposal designed just for you.

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Founded by internationally renowned investor and best-selling author Peter Schiff, Euro Pacific Bank offers clients an unparalleled offshore banking experience. Superior customer service and innovative non-lending, hard-money approach differentiates EPB in the offshore banking world.

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