Get Outta Here

Why Go Offshore?

Asset protection is certainly one of the leading benefits offered by these kinds of tax havens, since assets held offshore are essentially immune from seizure and hostile litigation. A quick look at the growing predatory litigation phenomena, ever-present throughout the United States, pretty much tells the story of why business owners and professionals are worried about the need for asset protection: 5 percent or less of the world's population resides in the United States; about 20 percent of the world's economy is in the United States; 70 percent of the world's lawyers reside in the United States; and a staggering 94 percent of all the world's lawsuits are made in the United States. And lawsuits on a commission basis-referred to by the U.S. legal system as "contingency litigation"-are against the law in just about every other country in the world.

Money that's held offshore is immune from almost all forms of judicial proceedings from the United States. There are literally millions of Americans who maintain offshore accounts in safe-harbor jurisdictions-and they sleep better at night for it, too.

Another benefit offshore accounts offer entrepreneurs is privacy. Why is this privacy important? Because privacy and risk planning go hand in hand. Offshore clients seeking confidentiality in their affairs can protect their business strategies.

While keeping financial transactions private in some countries is against the law, in other countries it's a violation of the law to reveal anything about a person's banking or financial activities. The largest and most recent source of personal privacy violation in the free world has become the United States. A pertinent example of this country's rapidly expanding citizen-control laws is that financial institutions are now required to automatically report to the government most of the banking, bartering and securities business of its private citizens.

In an increasingly hostile environment, privacy is essential to risk planning. The clientele of offshore trust companies typically seek confidentiality in their affairs to protect assets from disasters, unwarranted third-party interferences and an ever-growing burden of unnecessary disclosure. It's a trust company's business to provide legal structures and, in some cases, private banking services to protect client assets, ensure privacy, and reduce risk, taxes and costs.

And if investing in global securities, including top-performing mutual funds not available to U.S. citizens, interests you, an offshore company allows you that option. Standard & Poor's Guide to Offshore Investment Funds reports on 6,800 offshore funds and includes an in-depth survey of the top 350 performing investments. Some of these funds have achieved five-year returns of 800 to 900 percent. Standard & Poor's guide also reports that the one thing these 6,800 funds share in common is their tendency to refuse U.S. investors. Their reasoning is simple: They want to avoid pestering from taxing and regulatory authorities in the United States.

In order to access offshore funds, entrepreneurs who are citizens of the United States are able to use an offshore company as the "investor." Assuming that the investing company is appropriately structured, its returns may actually compound-without taxation-until that income is paid out to the entrepreneur.

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This article was originally published in the July 2000 print edition of Entrepreneur with the headline: Get Outta Here.

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