Tax-efficient investments at your fingertips

Tax-efficient investments at your fingertips

Offshore Investments

What are offshore investments? Basically, they’re tax-efficient investments that many expats in the world, besides US nationals, take advantage of.

If you’re an American renouncing or considering renouncing US citizenship, you’ll most likely have to re-organize your entire financial strategy. On the surface this may seem very difficult, just think how long it took to organize your finances in the first place! But believe it or not, it’s not as frightening as it may seem.

Once you renounce, you will no longer be tied to the IRS. That means FATCA, FBAR and other tedious four digit IRS forms don’t have to be completed anymore. That opens up a range of tax-efficient international and/or offshore products that you’ll be able to use, something expats from other countries have been using for years.

Offshore investments are based out of offshore financial centers, or OFCs. These low tax jurisdictions are either countries or located within areas of nation-states; some examples include: Switzerland, the Isle of Man (UK), Guernsey (UK), Hong Kong, and Singapore. By being an expat or living outside of your country of residence, some companies located in these OFCs give you the opportunity to take advantage of their special status to make highly tax-efficient investments. For this reason, these investments have been extremely popular for expats for decades.

Offshore investments can significantly grow your wealth in a tax-efficient environment

Nonetheless, offshore investments have never been appealing for US nationals living abroad. American expats should keep away from certain offshore investments, as many of them can be considered PFICs. Anything classified as a PFIC by the IRS can lead to extremely high taxes on gains every year. However, the day you renounce you US passport, you will become a citizen of another country and possibly have the chance of making efficient offshore investments that can significantly grow your wealth.

Furthermore, after you renounce, you will become a citizen of a new country. This gives you the chance to not only use international and/or offshore investments, but also institutions that are only available to citizens of that nation. For example, if you renounce and become Canadian or British, you will be able to use their national health care services at a fraction of what you’d pay back in the US. If you move to Finland where education and other institutions are free, likewise, your financial obligations would be much less.

In our opinion, if you do live in a country where the government provides medical and financial support, it’s still recommended to have a private plan in place, especially since you’ll be paying for these services through higher taxes. On the contrary, if you move somewhere with little government sponsored programs, it will probably be necessary to establish a new plan with new investments to re-start your life as an ex-American.

In any case, do your research, and drop us a line if you would like to know which tax-efficient offshore investments are available to you and, more importantly, if you’re in the position to benefit from them.

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