Investment Companies

Funds accu­mu­lat­ed through invest­ment com­pa­nies set up in off­shore areas can be invest­ed or deposit­ed through­out the world and whilst gen­er­al­ly returns or inter­est payable in respect of these funds will be sub­ject to local tax­a­tion, there are a num­ber of off­shore areas in which funds may be placed either in tax free bonds or as bank deposits where inter­est is paid gross. Similarly, in many off­shore areas no cap­i­tal gains tax­es are applic­a­ble. Use of an off­shore com­pa­ny incor­po­rat­ed in a suit­able coun­try allows the pos­si­bil­i­ty of invest­ing tax effi­cient­ly in a high tax coun­try where there is a con­ces­sion­ary tax treaty in respect of invest­ments made by com­pa­nies incor­po­rat­ed in the off­shore coun­try.

Tax Planning Consequences

It is impor­tant to note that you can­not sim­ply open up an off­shore trad­ing com­pa­ny and “pre­tend” to make mon­ey off­shore. Any income through invest­ment would have to be actu­al­ly “sourced” out­side of the United States (either through the IRS tax sourc­ing rules, or var­i­ous tax treaties) to receive tax ben­e­fi­cial treat­ment. In addi­tion you must make sure that your struc­ture does not run afoul of the IRS Controlled Foreign Corporation Laws and that your struc­ture is not deemed to be a Foreign Personal Holding Company.

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