Creative Ways to Liberate Your Offshore Investments

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Creative Ways to Liberate Your Offshore
Investments

Friday, January 12, 2007
Vol. 9 No. 11

In Today's Letter:
Comment: Liberate Your Offshore Taxes
Offshore: Keeping New Year's Resolution #7
Sovereignty: Stealing Ideas Is Still Stealing
Currencies: How the Markets Reacted to Bush Flexing His Muscles

Creative Ways to Liberate
Your Offshore Investments

Today's comment is by Mark Nestmann, our Wealth Preservation & Tax Consultant and author of numerous books and reports on tax strategies.

Dear A-Letter Reader,

You've opened your offshore bank account... just acquired shares of one of the world's best-performing hedge funds...and purchased a second home on a sunny beach in the Caribbean...

Now, all you have to do is to sit back and enjoy the warm weather, and let your profits grow, right? Well, not exactly.

While you're enjoying the sunshine, potential tax problems may be brewing.

For instance, when you purchase offshore shares, you may suffer double taxation: both dividends and capital gains taxed by two countries. A "tax trap" in the Internal Revenue Code could threaten to not only strip you of all the profits you make in the hedge fund, but also effectively confiscate part of your principal!

And you might be surprised to learn that your hedge fund is subject to inheritance taxes where you bought it. So the person you intended to pass it on to might not be able to inherit it under that country's laws.

Avoid the 9th Circle of Hedge Fund Hell

So what's the 9th circle of hedge fund hell? It's when hedge fund managers don't tell you how much tax you should be paying yearly on your offshore hedge funds.

Fortunately, there are creative ways to deal with these problems:

If you're required to file a U.S. personal tax return, you can usually take a credit against the foreign taxes paid toward your U.S. tax liability on the same income. There are lots of "ifs ands or buts" but that's the general rule.

In other situations, you may need to resort to a tax treaty to avoid double taxation. Or you may need to establish lower withholding taxes on dividends, interest, and (sometimes) capital gains.

If you want to buy hedge funds, but are frustrated by the insane U.S. rules that make them literally "hedge fund hell" for taxpayers, you'll be glad to know that it's still possible to own them in a tax-sheltered form. Variable annuities, life insurance policies, and retirement plans are the ways to do it. But you must follow the strict IRS rules to achieve tax deferral on your income or gains.

And to avoid having your beachfront condo in the Caribbean being subject to a foreign probate proceeding at your death, you might want to consider holding it through a trust. Once again, there are tax and reporting issues to consider, and in some countries, you'll need to hold the property through a local company formed there.

I'll be discussing these possibilities, and much more in the March 2007 issue of The Sovereign Individual, The Sovereign Society's members-only newsletter.

MARK NESTMANN, Wealth Preservation & Tax Consultant
On behalf of The Sovereign Society

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Offshore

Keeping New Years Resolution #7:
Take Control of Your Retirement Plan So You Can Start Building Your Nest Egg

The standard rule is you need 60% to 90% of your pre-retirement income to maintain a similar standard of living post-retirement.

According to our retirement expert, Larry Grossman, millions of Americans have no where near that much saved for their retirements.

And the Baby Boomers, a.k.a. the largest generation inching closer to retirement, you need to be prepared to fund your retirement solo, without any government help.

So make this the year you finally start building your nest egg. Here's a few ideas how...

1. Calculate what you believe you will need for retirement if you haven't already done so. Our retirement expert, Larry Grossman, has several retirement calculators on his website at www.worldwideplanning.com , under the "news and resources" tab.

2. Meet with a retirement professional to ensure you're making the highest possible contributions to your plan. In the U.S., the IRS just changed the rules governing retirement plans. According to the new rules, you may be able to contribute more to your retirement plan each year pre-tax.

3. If you have an IRA, consider taking it offshore to get access to all global investments.

4. If your IRA is already safely housed offshore, perhaps consider some alternative investments like offshore real estate.

5. If you have a normal 401(k), ask your employer if perhaps they would be willing to offer a self-directed plan, so you can take more control over your retirement investments.

Click here for more tips on building your retirement plan.

ERIKA NOLAN, Executive Director

Sovereignty

Stealing Ideas Is Still Stealing

A hacker actually managed to outsmart a software program used to protect copyrighted material on both HD DVD and Blu-Ray movies. According to reports, the hacker using the name of "muslix64," released a tool called BackupHDDVD including its source code. Then the hacker posted a video on Youtube showing other would-be hackers how a movie can be decrypted and then played back from a hard disk drive.

It's curious how little objection most people have to violating copyrights. In fact, hackers like muslix64 are quick to brag to their peers about their technological prowess in breaking through the locks other creative professionals put on their property.

However, what this hacker has done is no different from inventing a better tool for stealing cars, and passing out free copies to would-be car thieves. I wonder how muslix64 would feel if his computer was hacked, the program he devised was stolen by another hacker, and that hacker claimed the idea was his own. No doubt muslix64 would feel outrage at the theft of his efforts. No doubt, he considers the idea to be his property.

Are ideas property? The core confusion in such issues is the lack of a precise definition of 'property.' The most useful, precise, and scientific definition I've come across is that created by the late Andrew Galambos. He defined property as "Man's life and all non-procreative derivatives thereof." He then went on to divide property into the sub-categories of primordial property (your body and mind), primary property (your ideas), and secondary property (the tangible things you create using your primordial and primary property). If we then agree that theft or stealing is the taking of another person's property without that person's freely-given consent, certainly muslix64 is facilitating and encouraging stealing.

That so many are oblivious to the principles of copyright is a sign of the lack of general understanding of the importance of the protection of property.

This ignorance is understandable, especially if you consider that people are culturally conditioned to believe in the sanctity of government. In its current guise, government operates on the premise that the need of the group justifies the theft of property from any and all individuals in the group. Politicians pass laws confiscating all forms of property without explaining why it's all right for the state to take your property by force, while it's not all right for individuals to do the same. Government steals your money (taxation), your ideas (it limits your exclusive right to your ideas by only limited copyrights and patents), and often enslaves your body (conscription, victimless-crime laws, etc.).

Just as the owners of the movies, music, and software are angered by the theft of their property, so every individual instinctively reacts with resentment and anger when his property is used or taken without his freely-given consent.

If you carefully examine history, you will see that all conflicts enveloping families, communities, and nations can be traced back to the real or perceived theft of property.

JOHN PUGSLEY, Chairman

Currencies

Bush Flexes His Muscles and the Dollar Rallies...for the Moment

President Bush addressed the U.S. Wednesday night on his latest plans for the "War on Terror." He's now committing over 20,000 more troops in a last ditch effort to "fix"
Iraq. There's a lot riding on this move. It shows more resolve than even he could have possibly imagined at the onset of this war.

Bush spoke clearly and boldly. His "we're-not-taking-more-crap" theme took his normal policy briefing to the next level. It's do or die now (as if it hasn't already been). But you have to wonder whether this maneuver might incite unwanted reactions from a Middle East that's been relatively quiet since last summer's Israel/Lebanon debacle.

Should tensions erupt into something far more serious would we see money flow into the U.S. dollar in a flight-to-safety play? Or would that money flow somewhere else? We see more and more anti-American countries dogging the dollar these days. The greenback may be on a short leash.

Crude oil is relatively cheap. First mention of escalating conflict and we could see a slew of bargain shoppers buying up the black gold. Speaking of gold, the yellow metal's inverse relationship with the greenback is as strong as ever. We're watching a short-term head-and-shoulders pattern play out with gold.

However, during trading Wednesday the dollar got another boost when the U.S. trade deficit unexpectedly narrowed on increased exports. But how long will goods produced in the U.S. and shipped overseas stay cheap?

Maybe the European Central Bank (ECB) and Bank of England (BOE) can help us answer that question. The dollar was trading lower before the BOE unexpectedly raised rates in the face of worsening inflation.

December was a solid month for Europe's economy, and the U.K.'s in particular. The growth picture throughout Europe hasn't seemed to change much. Yet the ECB chose to leave their overnight lending rate unchanged at 3.5%. If investor focus on the ECB to leave their rates alone, instead of the BOE, the dollar could find still some breathing room.

JACK CROOKS, Currency Director

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