TAX TIPS: Tax benefits for American Citizens living abroad: The foreign earned income exclusion of Section §911 of the Internal Revenue code.
Under US tax law (i.e., Section §911 of the Internal Revenue Code) , an American taxpayer and his wife can exclude up to $76,000 each from their salary ($152,000 = total), provided they live offshore at least 330 days of every year. This is called the "Foreign Earned Income Exclusion", and is part of the Statutory Internal Revenue Code. This exclusion is an annual tax allowance under US tax law, but you have to live outside the US at least 330 days to qualify for it.
The amount one can exclude increases to $80,000 for fiscal year 2,002. For 2001 the amount excludable is $78,000.
In January, 2001, I became an "Overseas Agent" for the Anguilla Government Registrar of Companies, and as such, have a signed "official" Agreement with them. I also have same agreement with a barrister in Anguilla - also working directly with Anguilla Government.
Copyright - "Tax Haven Reporter" - All Rights Reserved
Tom Azzara
New Providence Estate Planners, Ltd.
(Consultants)
54 Sandyport Drive
P.O. Box CB 11552
Nassau, Bahamas
Fax/phone: (242) 327-7359
email: taxman@batelnet.bs
http://www.bahamasbahamas.com
Here's what my IRS 2,000 (1040) Booklet says on page 15 (Chapter 4): Source of Earned Income: "The source of the earned income is the place where you perform the services for which you receive the income. Foreign earned income is income you receive for performing "personal services in a foreign country. Where or how you are paid has no effect on the source of the income.
For example, income you receive for work done in France is income from foreign source even if the income is paid directly to your bank account in the United States and your employer is located in New York City." - verbatim - IRS.
For Example: Anguilla Real Estate broker company X received $1,000,000 in annual commissions in 2,002. John and Joan Dakota (now living in Nassau, Bahamas or Georgetown, Cayman Islands) are the owners of Anguilla Real Estate broker company X - a company that has no offices inside the US.
John and Joan of Nassau could receive up to $160,000 in salary from the offshore IBC, as employees, and they would only have to file a IRS Form 2555 with their 1040 tax return.
This "exclusion" is called the Foreign Earned Income Exclusion - and can be taken annually; but if you don't file Form 2555 with your 1040, you don't get the EXCLUSION!
Anguilla Real Estate broker company X would owe no taxes on its $1,000,000 revenues, so long as it does not "do business inside the US". Anguilla has no income tax system. Furthermore, countries like Anguilla, Cayman and the Bahamas do not tax capital gains, dividends, royalties or interest. There is no estate tax duty in these places either, and no gift taxes.
Furthermore, with a little tax planning, the corporate income accruing to the Anguilla company from "services performed outside the US" would not ordinarily be "Foreign Personal Holding Company Income" in the hands of the shareholders. Using a foreign trust to hold the shares of the foreign company from the very beginning can often help avoid some of the other pitfalls in the US Tax Code i.e., that might apply to John and Joan Dakota (as shareholders of Anguilla company X).
Incidentally, US taxpayers John and Joan Dakota (above) would owe taxes on their capital gains and interest income, as these incomes are not considered "Foreign Earned Income" under Code/Section §911. That's the only real downside to this "loophole".
The No-TAX HAVEN ANGUILLA
We arrived back into Nassau from Anguilla in mid July, 2001 - after an 8 day stay in this tropical paradise. We met with our bankers, the government registrar of companies and our office partners - 3 attorneys - graduated with honors from commonwealth law schools.
Michael S. Dell (Dell computers) is building a mansion on this island paradise - we were told by two islanders of substance. So is Arnold Swartznegger.
There are only 10,000 people on this island, no larger than Nassau, Bahamas. There is a lot of development going on.
About 18 months ago I recommended Dell computer's stock in my newsletter as a purchase. After gathering information on Dell's website, I learned that Michael Dell was selling $500,000,000 of Dell stock, not once but twice in that year. SEC rules require insiders to disclose their sales in advance.
Anguilla's Financial Services Sector has grown (IBC startup and renewals) by 40% over fiscal year 2,000 numbers through June 30th 2001. They still have banking confidentiality legislation and are British crown dependency/territory. "Colony" is not a word the British like to use any longer.
Just a few years ago, the British government dumped £14 million pounds into the island - over a three year period. They also back up their current offshore legislation - which is actually a bit better than rival Cayman and BVI - both very large/established financial centers.
We ate breakfast almost every morning at an Englishmen's resort called the Malliouhana. The Malliouhana had over 200 royal palms lining the driveway to his resort. Rooms top out at over $2,500 per day (in season) (with pool). The owner has his ocean home mansion right next to his resort.
Breakfast for three was under $50 every time.
The name Malliouhana was the original name of the island of Anguilla, given to it by the Arawaks, an Amerindian people who occupied/settled this and other the Caribbean Islands (including Cuba) from 2.000 BC. The English first settlement came in 1650 (amongst the Indians). Columbus brought some back to Ferdinand and Queen Isabel of Spain.
But, the English colonists of Malliouhana had hardly settled down, when a "warrior" people called the Caribs (from South America) raided the islands, killing most all the men, and taking the woman and children for slaves. Their village was destroyed.
There are several 5 star resorts on the island - including Cusinart Resort and Spa.
Water temps are lower than those in Nassau (currently 88º). That was surprising. Beaches in Anguilla were more numerous, and there was no traffic anywhere - ever.
That was a real plus.
There is practically no crime, and almost full employment for this little island paradise - country on the move - up.
Call me at 242-327-7359 with your questions. - 9AM to 5PM - New York time zone is best.
In the last 14 years, I've incorporated over 1,300 International Business Companies here in Nassau and the US Overseas Territory of Anguilla!
Beginning in 2,001, we began forming IBCs out of the Crown Colony and no tax haven of Anguilla - 150 miles east of Puerto Rico.
We had a total of over 400 IBC's (in-house) that are mostly Bahamian in origin, but most have moved to a better jurisdiction - in our opinion.
We've formed more than 280 Anguillan IBCs since the beginning of this year (1-3-2001 thru 2-1-2004).
It takes less than one day to get a company registered in Anguilla, and on the way back to client the next day.>
In January, 2001, I became an "Overseas Agent" for the Anguilla Government Registrar of Companies, and as such, have a signed "official" Agreement with them. I also have similar written agreements with a barrister/firm in Anguilla - also working directly with Anguilla Government.
Outside of this, we/I can and will provide you with bank contacts and application information for good banks in the following jurisdictions: Isle of Man (a major institution) + Anguilla (2 banks there - one used by the Anguilla government) + Bermuda (one of oldest banking institutions in offshore world)
