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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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