Panama has privacy, protection and opportunity

This article originally appeared on The Sovereign Investor on Sept. 15.

I’m flying in through Copa Airlines toward one of the busiest travel hubs in the Americas, the Aeropuerto Internacional de Tocumen in the Republic of Panama.

I first visited Panama in 1975, when, during the Carter-Torrijos treaty negotiations, I went there as a member of the U.S. House of Representatives Subcommittee on the Panama Canal. I have returned countless times since then, witnessing an amazing transformation over 35 years.

An impoverished military dictatorship resenting domination by a U.S colonial presence has today become one of Latin America’s leading democratic countries. Within Latin America, the country has the fastest economic growth, the lowest unemployment and greatly reduced poverty. And despite our sometimes contentious mutual history, Panamanians welcome and respect Americans.

The Panama Canal has always fascinated me and should be a source of pride for all Americans. Built by the U.S. Army Corps of Engineers and opened a century ago in 1914, it is one of the world’s greatest engineering feats. Although I had opposed surrendering the Canal to Panama, in retrospect I believe that was the right decision, one that has worked very well.

The country has grown and prospered since my first visit nearly 40 years ago. And the current $7 billion expansion of the Canal, combined with a new resident visa program, is bringing more wealth into this tropical paradise, one of the world’s leading and best offshore financial centers.

The financial and personal privacy of Americans has been destroyed by the government. Our rights have been restricted and our financial safety threatened by a debt near $18 trillion and counting. In order to pay for this mess, politicians are threatening a massive wealth confiscation.

The timing couldn’t be better for Americans to consider the Republic of Panama as an offshore haven where they can find a secure future for themselves.

As the U.S. government has continued to tighten its financial control over Americans, Panama has opened its doors even wider, offering real economic opportunities for investments and immediate residency status under a host of visa programs. Unlike the IRS’s onerous worldwide taxation of Americans, Panama’s territorial taxation encompasses only what is earned within the country.

A second home in Panama

In 2012, then-President Ricardo Martinelli signed an order creating a new category of “Immediate Permanent Resident” for foreign nationals. Executive Order 343 established a visa for foreigners from countries “that maintain friendly, professional, economic, and investment relationships with the Republic of Panama,” including the United States.

Rainelda Mata-Kelly — one of the speakers at our 2014 Total Wealth Symposium, a leading Panama immigration attorney and my longtime friend — can assist applicants who qualify for this quick-residence visa category.

And unlike the sluggish U.S. economy, Panama’s is booming. Spurred by the $7 billion modernization of the century-old Panama Canal, the country has enjoyed amazing economic growth with the unemployment rate down to 4.1 percent and the GDP up 5.8 percent in the second quarter of 2014.

When I met with Minister of the Presidency Demetrio Papadimitriu last year, he explained that Panama’s open-door policy “seeks both foreign direct investment and skilled international professionals. We are looking for workers in growth sectors such as logistics, tourism, banking and those making Panama a regional hub for multinational companies.”

Under this immigration category, qualified applicants will be able to engage in professional and economic activities, establish businesses and have the right to work in Panama, permissions that in the past have been difficult to obtain. After five years, they will be eligible to apply for full citizenship. And they can bring their spouse and family with them.

Magnet for foreigners

Apart from its enlightened asset protection laws and strict banking privacy, Panama has much to offer frustrated Americans who want government to leave them alone.

Just a two-hour flight from the U.S., Panama is the largest banking center south of Miami. There are 70 banks, about 50 of which are multinational, collectively holding an estimated $100 billion in assets, with liquidity impressively high at an average 30 percent, far better than U.S. banks.

John Gaver, president of Action America, says: “Panama is creating a huge magnet for foreigners with either skill or money to move to Panama and work or start a business at a time when the U.S. government is making it increasingly punitive for those same people to stay in the United States.”

Panama City offers thousands of modern condominiums, more than 100 skyscrapers (including a Trump Tower, of course), first-class hotels and restaurants, excellent high-speed digital Internet and Latin America’s only, brand-new subway transit system.

Downtown Panama City, the balmy, tropical capital on the southern, Pacific end of the Panama Canal, suggests Miami, except arguably more locals speak English here than in many parts of South Florida. Night clubbing and fine dining can be local delights. For first-time visitors, the Panama Canal is a must-see tour.

For those who want to combine pleasure with business, there are multiple vacation retreats on the Pacific side, including Coronado, Contadora Island and, on the Atlantic side, Bocas del Toro, with Boquete and Volcán Barú in the cool western mountains on the Costa Rican border.

This is why the company I write and serve as the legal counsel for, The Sovereign Society, is hosting its annual asset protection conference in Panama City and offering its own confiscation survival kit to assist you in the troubling months to come. The conference represents the values we hold near and dear to our hearts, principles which the United States has long since abandoned.

Faithfully yours,

Bob Bauman, J.D.
Chairman, Freedom Alliance

How To ‘Confiscation-Proof’ Your Wealth

Financial attacks are always unexpected — especially when they come from your government.

Desperate governments always prey on those with assets easy to lose.

The last thing you want is to be forced to scramble for last-minute, quick-fix solutions. By then, it’s too late. Your cash is gone.

Think about what happened in Cyprus last year. Without notice, citizens and companies overnight saw all funds in their bank accounts above 100,000 euros ($137,400) stolen as part of what politicians called a one-time “stability” tax.

This move to seize bank accounts is something I see happening here and in other countries in the very near future.

That’s why I want to show you an investment that can safeguard your money when the Washington politicians try a direct money grab.

This can protect your wealth against a plummeting dollar and soaring taxes.

It can provide huge returns on your investments to offset hyperinflation.

And it can ensure your family has enough money to last for generations to come.

Let me explain.

Confiscation-Proof Your Wealth

When governments take citizens’ private property to fund their debts and spending, they lie and claim to be engaging in “an accounting exercise.”

That’s what the Polish Central Bank called that country’s recent confiscation of private pensions.

I call it what it is: larceny.

One of my top recommendations to avoid this tyranny has always been international-funds diversification. And there’s one investment that’s far more secure — and nearly impossible for anyone to touch — than all others.

It’s a form of insurance.

I know most people cringe when they hear the word “insurance,” but think about this:

  • You insure your car.
  • You insure your home.
  • You insure your health.

Yet your hard-earned wealth sits unprotected in bank and brokerage accounts. Your cash is wide open to government robbery, to the destruction of everything you’ve worked your entire life to build.

The absolute best way to protect your wealth is with an offshore variable annuity.

This little-known investment is one of the simplest, yet most comprehensive, wealth-protection solutions available today; and it’s a great alternative to traditional IRAs.

An offshore variable annuity wraps your investments in an insurance “cloak” that protects you from confiscation.

Yes, the government can come in and take 10 percent of your bank and brokerage accounts, but it can’t take 10 percent of an offshore insurance policy.

That’s why I urge you to consider insuring your wealth before the looting begins.

So where can you obtain an offshore variable annuity?

Opportunities In Switzerland

I encourage my friends and readers to consider Switzerland-based insurance and annuities.

Why Switzerland? The degree of asset protection guaranteed by law for Swiss life insurance and offshore variable annuities is unparalleled anywhere else in the world.

The many benefits include:

  • Global Investment Opportunities: You get access to some of the world’s best investment opportunities. Instead of the short list of U.S. equity funds in your typical 401(k), this investment has no limitations. In fact, it can invest your money anywhere in the world, unlimited by your U.S. citizenship.
  • Tax-Deferred Growth: You get the benefit of tax-deferred growth. Taxes are paid only when a distribution is made to you or your beneficiaries.
  • Flexibility: Your life, legal and tax situation, your outlook on the markets and even your outlook on the political environment will change over the years. This investment has the flexibility to change so your money isn’t locked into a rigid structure that is costly to maintain or hard to change.
  • Privacy: In most cases, this Swiss investment is protected by strict privacy laws with information released by court order in a criminal investigation. No Internet search or random phone call will ever reveal that you own this investment.

Please note, offshore variable annuities are not for everyone, but if you have at least $100,000 to invest, you should seriously consider adding this wealth protection vehicle to your portfolio.

Given the current economic situation, as in Cyprus, anyone with a positive net worth will become the target of a government willing to use your money to pay for massive national debt. But an offshore variable annuity is a highly affordable solution that ensures your money remains yours.

One resource to get this set up is Marc Sola, a Swiss lawyer and insurance expert, and his associates at NMG International in Zurich. They are experts in tailoring policies to each person’s individual needs.

Please don’t delay. Confiscation is coming, and insurance is a great way to avoid it.

Faithfully yours,
–Bob Bauman, J.D.
Editor, Offshore Confidential

Expatriation Soars On Approach Of FATCA Deadline

“I wouldn’t join any club that would have me as a member.” — Groucho Marx

I know how he feels, and so do an increasing number of Americans.

Of course, Groucho’s crack was meant to poke fun at his own disreputable persona. But a skyrocketing number of Americans are deciding that they want to leave “Club U.S.A.” for good. The country itself is becoming a disgrace, and they no longer want to be associated with it.

Indeed, almost 3,000 Americans officially renounced their U.S. citizenship in 2013, according to Treasury Department records. As you can see in the chart, that’s a 221 percent increase over the previous year.

They join illustrious ex-Americans such as singer Tina Turner, Facebook founder Eduardo Saverin, filmmaker Terry Gilliam and songwriter-socialite Denise Rich, all of whom have renounced their U.S. citizenship in the past few years.

For years, formal expatriation was a rarity. As recently as the early ’90s, only a few hundred citizens took this step each year. Now the numbers are almost 10 times higher.

What do these ex-Americans know that would lead them to take such a drastic step?

It’s something that I’ve been talking about for a long time. And it’s about to get much, much worse.

Indeed, looming changes in U.S. tax law scheduled to take effect in July this year are almost certainly behind the surge in expatriation. That’s what ordinary American citizens living abroad are telling reporters who ask them.

graphic 1The U.S. tax code is unique in that it seeks to tax all income earned by U.S. citizens and green card holders, no matter where in the world they live or where they earn it. Almost all other countries tax only domestic earnings.

Although some foreign income is exempted from U.S. tax, millions of Americans living abroad are forced to pay the Internal Revenue Service every year, even though they don’t live in the U.S., earn their living entirely abroad and don’t consume any significant U.S. government  services. And every U.S. citizen abroad — even if he owes no tax — has to file an IRS Form 1040 return every year.

But the real burden of all this bureaucratic nonsense falls on Americans with significant financial assets in foreign bank and investment accounts, and it’s about to get worse.

U.S. citizens have long had to file complex reports with the U.S. Treasury listing all their foreign accounts and balances, which inevitably require expensive expert advice and preparation. The penalties for failing to file these forms are exceptionally severe.

And starting in July this year, because of the Foreign Account Tax Compliance Act (FATCA), offshore financial institutions — banks, investment houses, insurers and the like — are required, under penalty of exclusion from the U.S. banking system, to report most U.S. citizen accounts held overseas. Foreign banks are about to become part of the IRS’s network of informants.

Now, many U.S. citizens living permanently abroad wouldn’t consider this a big deal. They file their U.S. Treasury reports and their taxes, and that’s it. But a significant proportion of Americans abroad are finding that the reporting requirements imposed by the IRS on their banks are prompting the banks to close their accounts unilaterally. It’s just not worth the trouble and cost to have American clients.

Imagine how you’d feel if the ill-considered, tyrannical actions of a government in a country you don’t even live in imposed that sort of burden on you as you tried to live your life peacefully abroad.

But it gets worse.

The Tangled Web Of The IRS

Thousands of people who have U.S. citizenship by birth — but who live in and are citizens of the country of their parent’s origin — are finding out that they are also liable to report under these insane U.S. laws. Canadians, in particular, are feeling the bite of this new law. Any Canadians who live near the U.S. border and may have been born in a nearby American hospital are now trapped in a bureaucratic nightmare almost impossible to describe. Their local Canadian banks have to report on them, even though they have nothing to do with the U.S.

So these and other U.S. citizens are doing the logical thing. They are turning their backs on the so-called “land of the free” and washing their hands of the whole crazy business, as well they should.

And maybe you should consider doing so as well. The U.S. government has accumulated a mountain of debt, and the only answer it has to eliminating that debt is to grab your wealth — regardless of where you live and earn. The price of being a part of this club is rising, but the benefits are dwindling fast. That’s why we at the Sovereign Society works diligently to identify and promote opportunities for a safe, prosperous and hassle-free life abroad.

Faithfully yours,

–Bob Bauman
Editor, Offshore Confidential

Will Obama Nationalize U.S. Pensions?

Will President Barack Obama nationalize United States pensions? That was the serious question I proposed one year ago in my blog—and it’s time to ask that question again.

Why now? Because President Obama has proposed what one of our experts sees as the "first step in stealth nationalization and forced investment of our retirement benefits."

The bad news comes as part of a tax package said to be aimed at middle-income Americans that was revealed in Obama’s State of the Union speech, as reported by Business Week magazine.

Obama’s stealth proposal is billed by him as an "effort to increase retirement savings by requiring all businesses to offer automatic IRA accounts,” but it drew immediate opposition from U.S. small business associations. Obama claims the plan would let employees automatically enroll in direct-deposit retirement accounts and expand matching tax credits.

Dangerous First Step to Nationalization

But Larry C. Grossman, CFP, CIMA, managing director of Sovereign International Pension Services (no relation to Sovereign Society) and a member of our Sovereign Society Council of Experts, sees the Obama idea as a dangerous move.

Says Grossman, "If you read it closely you will see the heart of the proposal is the requirement to keep 10 percent of the funds in U.S. Treasuries. At the stroke of a pen the president has found a way to bolster the declining demand for Treasuries. I believe forcing retirement plans into U.S. government control is the next step."

This alarm was echoed by Ron Holland, editor of the Inner Circle Intelligence Report published by BFI Consulting AG, a Swiss financial advisory firm, and a long-time member of the Sovereign Society Council of Experts.

Says Holland, "I think the mandatory IRAs just proposed by Obama is the first step in stealth nationalization and forced investment of our retirement benefits to support the U.S. Treasury debt market."

Should you be worried about this latest radical Obama move?

There is an estimated $15 trillion worth of private retirement plans in the United States; $4 trillion in IRAs alone; this constitutes 35 percent of all private assets in America. That is what the Obama government is eyeing to help plug the multi-trillion dollar deficit in his big spending budget.

You could call this move Obama’s attempt to "pull an Argentina."

What’s “An Argentina?”

In October 2008, Argentine President Cristina Kirchner—a peronista—confiscated US$30 billion worth in that country’s 10 privately managed pension funds. This was presented as an emergency measure to meet her faltering government’s financing costs. The Argentine congress went along with this radical property grab of individual retirement accounts, 401Ks and the like.

Could this happen in America?

Grossman’s opinion, "There have been several different academic papers published which have given rise to rumors. At least one congressional hearing on nationalizing pensions has been held. It is difficult to decide in what form it would take if something like this occurred in the U.S. Many believe that if indeed this is approaching, the best way to protect your assets is to place your retirement funds offshore now."

Holland says, "I believe we must fight this proposal and similar plans or else the private retirement system and our retirement wealth will be history in a few short years." Ron has produced a special report on this radical grab entitled, The Obama Retirement Trap Has Started!

Act Now

In my opinion, adopting such a retirement confiscation policy would be another major blow to Americans’ confidence and to any chance of economic recovery. It would further devalue the dollar and it would destroy what little remains of the credibility of Obama and his socialist government.

Folks, I served in the U.S. Congress when Democrats were overwhelmingly in control. I’ve seen what happens when the Republicans are in charge, as well. Meaning simply, anything can happen—so hold on to your wallet… and your retirement account!

—Robert J. Bauman, JD

Preventive Lawyering: How an Ounce of Prevention Can Save You A Ton in Legal Fees

Finding a good lawyer is too often a difficult task.

The best are always busy—and usually very high-priced. If you know and trust the advice of someone who personally has been served by a particular attorney and—based on that service—is satisfied enough to make a good recommendation, that’s usually a good bet.

An initial half hour consultation with an attorney is usually free. After that first meeting, however, most attorneys require a "retainer fee," an up-front payment that can be a considerable amount (possibly $5,000 or more), depending on the extent of the legal work proposed. Usually, charges are assessed against the retainer fee at an hourly rate. When the retainer is used up, the client is billed for additional time. All this is embodied in a retainer agreement signed by you and your lawyer.

But even before O.J. Simpson’s highly publicized trial for murder… or the unprecedented establishment of a sexual harassment legal defense fund for the personal benefit of then president of the United States, William Jefferson Clinton, many Americans were well aware that only the rich could afford the supposedly “very best” attorneys—especially at a rate of $500 to $1,000 an hour.

Laurence Tribe, noted Harvard University law professor and frequent television “legal expert,” once billed a client $625 for a one-sentence letter actually written by one of his law students. “It was a very long sentence,” Professor Tribe explained shamelessly.

Practice Situations

In arguing that you don’t always need a lawyer when legal issues arise, here are just a few common areas where you, with a little research and reading, can find the law by yourself: rights and obligations concerning marriage, divorce, alimony and child support; securing your assets by incorporating your business or forming a partnership; controlling distribution of your property after death with a will, trust and guardianship; involvement in a civil lawsuit, whether you’re the injured party (plaintiff) or the one being sued (defendant); protecting yourself when you buy, sell, rent or rent out property; what to do if you’re in an auto or other accident; what you need to know before drawing up or signing a contract of any kind; your rights as a consumer; and how to deal with the government in disputes over Social Security, disability payments and workman’s compensation.

Even if you think you need a lawyer in some of the situations I described above, it helps if you research and know the basic law before you meet with the attorney. You’ll be a step ahead and he or she will be impressed.

A Real-World Example of Preventive Lawyering

Let me give you an example of what I would call “preventive lawyering” that you can practice to avoid lawsuits…

As long as human interactions have occurred on earth, people have injured each other and damaged each other’s property, either accidentally or on purpose.

The law governing such unfortunate events is known as the “law of torts.” “Tort” is an ancient English word adopted from the French word meaning “wrong” and, in turn, derived from the Latin word tortum meaning, literally, “twisted.”

The basic concept of tort law holds one person responsible for injuring another or for damaging another’s property. The person who commits the wrong must pay money to the injured person, as recompense for the damage caused. Generally, wrongful (or “tortious”) conduct fits into three categories: 1) negligence; 2) intentional misconduct; and 3) conduct for which the law imposes strict liability.

Torts, Trespassers and You

You own a home or an office—real estate or real property, it’s called. How does the law of torts apply to your home place and your office?

Well, when a person goes on to, or remains on, the real property of another person, without the express or implied consent of the owner or the owner’s agent—even if no damage results—that is called “trespass to real property.”

An owner may use “reasonable force” to eject a trespasser, but has a duty to avoid inflicting intentional harm and to warn of any existing dangerous conditions known to the owner.

A similar duty of warning about known dangers is owed by an owner to invited guests. If a person can be classified as a “business visitor,” such as a delivery person or a customer, the owner has a continuing duty to keep the premises safe and/or warn of any known dangers.

Practically what that means is if you have a Jack Russell terrier that habitually nips at the mailman, you better post a “Beware of Dog” sign so, if necessary, you can say, “I warned you.”

When You Really Need a Lawyer

I must admit, as an attorney myself, I have been rather tough on my colleagues with this writing. My criticisms certainly do not apply to all lawyers.

There are many situations which can have serious legal ramifications on your life—so serious, in fact, that the best course of action is nothing less than obtaining the professional guidance of a qualified attorney.

If you think you need a lawyer, get referrals from trusted acquaintances, check the Internet or the yellow pages of your phone book under “Lawyer Referral Services,” or contact the office of your state or local bar association, which are also found on the Internet.

Sincerely,
Robert E. Bauman, J.D.

The Ultimate Estate Plan: How You Can Escape Taxes (and Possibly Tyranny) Forever

Americans find it difficult, in a nation with constitutionally guaranteed civil rights, to imagine that our freedoms could one day be taken away by government.

Yet in my lifetime, and that of many others now living, that is what we witnessed in Germany, Poland and the occupied territories during World War II. There was at first a gradual, and then the total, erasure of civil and economic rights. By war’s end in 1945, millions had died. But millions more, those lucky enough to survive, were displaced refugees who lost everything—property, homes and family.

Yet, when this turmoil began in the 1930s, there were those who were smart enough to realize early on what was happening. These people planned accordingly and escaped with their lives and their fortunes. They got out before asset confiscation, currency controls and financial restrictions were clamped down in their home country.

I don’t mean to belittle the heroic sacrifices of those who lived and died in that era. Nor do I want to overstate the seriousness of the current situation in the U.S. But I believe sovereign individuals have to accept the fact that our rights and liberties now are under attack by our own government. Equally alarming is the perilous economic state of not only our government, but our country as well.

Why You Need a Plan in Place

Consider the facts: Between financial rescue missions and the economic stimulus program, government spending accounts for a bigger share of the nation’s economy—26 percent—than at any time since World War II. Facing a $2 trillion deficit in 2009, a $12 trillion national debt and a declining dollar, the president calls for more and bigger programs for healthcare and just about everything else.

Higher taxes, inflation and economic collapse seem all but inevitable.

Given this dangerous state of affairs, common sense dictates that you should have an escape plan in place for your family and your assets. If the worst comes to pass, you will be ready.

While it may seem like an extreme step, expatriation—the process of giving up one’s citizenship—might not just save your wealth. It may save your life.

And the process, while dramatic, is relatively straightforward.

Every year about 250,000 U.S. citizens and resident aliens leave America to make a new home in some other country. More than 5 million Americans now live abroad. Only a tiny fraction of these people give up their U.S. citizenship, and of those, most do so for non-tax reasons.

Step #1: Find a New Place to Call Home

One of the first steps toward expatriation and escaping U.S. taxation is finding a new home country that best suits you and your personal tastes.

If you have a genuine interest in living offshore it’s best to take a “test drive” of at least several months by living in your chosen country before you make a final decision. Be sure to pick a country with a “territorial tax system” that does not tax offshore income—only income earned—within the country.

Most countries will welcome you as residents, but on their own terms. Some countries, such as Switzerland and Austria, prefer wealthy entrepreneurs willing to invest and create jobs in exchange for special tax and residency deals.

Other countries, notably Panama, Uruguay and Belize, take a different approach. They have special laws to attract foreign retirees of more modest means to take up residence. They welcome you, not just with a lower cost of living, by also with real estate and import tax exemptions, discounts on many goods and services, tax-free offshore income, and quick approval of resident applications.

While these so-called “pensionado” programs in Panama and Belize require minimal guaranteed annual income from established pensions, neither program leads to eventual citizenship. However, many of their immigration programs do. Uruguay’s retiree program does grant eventual citizenship.

Step #2: Secure a Second Citizenship
A second major step on the road to expatriation is acquiring a second citizenship. Simply put, this means that you are legally a citizen of two countries at the same time, qualified as such under each nation’s law. The U.S. Supreme Court has affirmed Americans’ right to hold dual nationality, although some countries do not permit it.

Millions of American citizens potentially qualify for various reasons—ethnic heritage, religion, country of birth or where their spouse was born. While it’s impossible to know exactly how many Americans have acquired another passport, experts put the number of U.S. citizens who either have, or are entitled to have a second passport at more than 40 million.

Based on your ancestry (parents, grandparents), several countries encourage foreigners to apply for citizenship. The most notable are Ireland, Italy, Poland, and with some qualifications, the United Kingdom, Spain and Israel.

If you don’t qualify for a citizenship thanks to your bloodlines, economic citizenships are available. If you want a fast second passport, two countries, St. Kitts & Nevis and Dominica, sell quick “economic citizenship” but at very high prices. However, both programs are perfectly legitimate.

It’s also important to note that dual citizenship might result automatically for some people. This can occur, for example, when a child is born in a foreign country or if a U.S. citizen acquires foreign citizenship through marriage to a person from another nation. Often these types of automatic options are overlooked, so check to see if you qualify.

Keep in mind that you can’t end your U.S. citizenship without having a valid second passport. You cannot be a proverbial “man without a country.”

The final step to freedom is to go to a U.S. embassy or consulate and hand in your U.S. passport. You will also need to sign an official document stating that you are renouncing your rights to U.S. citizenship.

Ultimate Estate Plan

Expatriation is indeed “the ultimate estate plan” in the very real sense that it gives you the legal right to stop paying U.S. taxes forever. However, it is a major step that will separate you from family and friends and treat you as a foreigner when you travel to the U.S.

Expatriation works best for those who have substantial liquid assets that can be transferred to the low tax country of choice. This process requires professional assistance for coordination of assets planning, assessing tax consequences and acquiring a second nationality.

A drastic plan? You bet. But for the person who wants a permanent and legal way to stop paying U.S. taxes, expatriation is the only option—and it could be a lifesaver in a crisis.

For information on offshore residence and dual citizenship, see my new 7th edition of The Passport Book. It covers some of the best offshore jurisdictions for whatever needs you have.

—By Robert E. Bauman J.D.

Emigrate to Canada & Beyond, and Leave U.S. Taxes Behind

More years ago than I care to recall, I graduated from the Edmund A. Walsh School of Foreign Service (SFS) at Georgetown University in Washington, D.C. (and GU Law too).

One of my SFS classmates from Canada told a memorable story about how his grandfather was constantly troubled about the possibility that “the Yanks were coming.” This elder Canadian, steeped in colonial history, was convinced that someday those ornery Americans would storm north across the border and invade again.

Well, in truth, a small number of Americans have headed north across that 5,525-mile long United States-Canadian border, famously styled as “the longest undefended border in the world.”

The objective of this migration is not to conquer, but to become Canadian citizens—and thereby reduce the American migrant’s U.S. taxes to zero.

Canada is not an offshore tax haven. Commonwealth and provincial taxes are relatively high. Except in specific programs designed to entice new immigrants to come to Canada (more on that below), there are few tax breaks for foreigners. However, little-known Canadian trust and tax laws, when properly employed, offer Americans a legal way to forever end the obligation to pay U.S. taxes—by becoming Canadians.

Expatriation

This unusual tax freedom is accomplished by a process known as “expatriation” in which a U.S. person voluntarily ends U.S. citizenship. That may seem extreme, but it can be done legally and consistent with U.S. and Canadian law—with the right expert professional legal and tax advisors.

American tax laws require “U.S. persons”—citizens or resident aliens—to pay income taxes on earnings from any source anywhere in the world no matter where they live. Unlike most other countries with “territorial” tax systems, a U.S. person can’t escape taxes by moving offshore.

By contrast, most other countries tax only the people who actually live within their borders. Canada for example, does impose taxes on the worldwide income of residents. But if a Canadian moves out of Canada and establishes a new residence in another country, the legal duty to pay Canadian taxes ends with few exceptions. This feature of Canadian tax law is an important part of our tax-saving expatriation plan.

Tax-Free New Residents

However tough taxes may be for the average Canadian, wealthy immigrants can take advantage of tax-free loopholes available only to them. Here are some of the options for high net worth immigrants who come to Canada:

1) A qualified immigrant accepted for eventual Canadian citizenship is eligible for a complete personal income tax moratorium for the first five calendar years of residence in Canada. They pay no taxes if the source of their income is a previously existing offshore, non-Canadian trust, (known as an “immigrant trust”) or an offshore corporation.

Because the high establishment and administrative costs of such a trust, it generally is best suited for immigrants who have at least $1 million or more in assets that can be placed in the offshore immigrant trust.

2) After living five years tax-free in Canada as a new citizen, the new Canadian can move his or her residence (and tax domicile) to another country, preferably a tax haven, and afterwards pay taxes only on income earned or paid from within Canada. They pay no taxes on their worldwide income. (There is a Canadian “departure” tax to be paid after filing a notice of intent to live abroad. There is no way of determining the exact rate of this tax since various types of property are taxed at differing rates.)

3) Canadian citizens and resident aliens employed by certain “international financial centers” are forgiven 50 percent of all income taxes.

4) Canada has abolished all national death (estate) taxes (but the provinces do have such taxes).

Investors Welcome

Canadian law favors a specific class of preferred immigrants including investors, entrepreneurs, the self-employed and those who will add to the “cultural and artistic life” of the nation. With minor variations in each of the provinces, investor immigrants generally must have a net worth in excess of C$500,000 (US$443,000) and be willing to invest at least C$250,000 (US$222,000) in a Canadian business for a minimum three- to five-year period. Purchase of a residence usually does not qualify as an investment, although it may if you work from home.

American Tax Burden

While most foreigners can relocate to a tax haven as a legal way to avoid home country income taxes, U.S. persons cannot. The only way a U.S. person can escape taxes is to end U.S. citizenship and residency—but only after acquiring a new citizenship from another country, another important step in the expatriation process. (No one wants to be the man or woman without a country!)

Let me assure doubters that, yes, this is legal. The U.S. Supreme Court has upheld Americans’ right to acquire another citizenship, to end their U.S. citizenship and to expatriate.

Likely Candidates

Q: Which Americans should consider expatriation?

A: Those concerned with high taxes. Without good estate planning, U.S. death taxes can take up to 55 percent of your assets from your heirs when you pass away—and that final tax insult comes after a working lifetime of paying up to 40 percent of your earnings in federal income taxes every year. Add in state and local income and sales taxes and you stand to lose in taxes well over half your earnings during your lifetime—and your heirs lose another half of what’s left at death.

The potential emigrant from America eventually must surrender U.S. citizenship in order to end U.S. tax obligations. But be aware of the new (2008) U.S. “exit tax” now in effect. If you qualify as what the law calls a “covered person” the exit tax may outweigh any benefit to be gained by immigration to Canada.

A Potential Savings of Millions of Dollars

There you have it. It may seem a difficult road to travel, but becoming a Canadian citizen investor can save a U.S. citizen millions of dollars that would otherwise go directly to the Internal Revenue Service.

Yes, these savings are predicated on major changes—including surrender of your U.S. citizenship. You must move yourself, your family and your business to Canada and possibly to another country later on. Despite these drawbacks, the true bottom line measured in dollar savings can be enormous.

–By Robert E. Bauman JD