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[FOR EU CITIZENS] Problems when going Offshore - List

neweraoffshore

neweraoffshore

IT Nerd Offshore Guy
May 9, 2019
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neweraoffshore.com
#1
Hi there Offshore Fellows,

I am new to this board and want to share my experience with you. I am neither a lawyer nor an accountant, I am just an IT guy who decided to go offshore a while ago. I went from being a customer of offshore providers to be a small one man offshore provider myself (which was more like an accident, but that’s a different story). So I think I can understand both sides of the offshore system. Therefore I want to share my experience and tell you which problems I encountered and what to take care of when going offshore.I want to make this thread especially for EU citizens because in this forum are a lot of different nationalities and what works for non-EU citizens doesn’t mean that it will work for EU citizens. I hope this will help to understand some traps and don't go offshore too quick, because it is mostly not as easy as the offers in the internet look like. I went through a lot of s**t, which I will tell you at the End of the list. I would be happy for everybody who appends this list with his problems he encountered. (From the EU citizen sight please)

  • Belize, Seychelles, Panama etc. Problem
    In the 80s it was common have an offshore company in either Belize, Seychelles, Cayman Islands or any other famous offshore jurisdiction but these days a lot of people with companies in these jurisdiction are/were in jail or had to pay back a lot of taxes.
    First of all the governments are not stupid. They are slow, but not stupid. After financial authorities checked thousands of companies and noticed billions of € in consulting invoices from Belize, Seychelles etc., they knew what was going on, however it took them years to make regulations for this problem. After the financial authorities slowly fixed the problem, invoices from offshore jurisdiction were heavily monitored, bank transfers to Belize, Seychelles etc. were declined and reported to the financial authorities or tax authorities just didn’t accept invoices as tax deductible, so the invoices had to been paid as a regular personal withdrawal and with this they had to pay the FULL tax. So directly paying to one of the black listed, grey listed or just watch listed offshore jurisdictions was not possible anymore.

  • Switzerland Problem
    As everybody should know at 1st of January 2017 the bank secrecy in Switzerland was history and a lot of people went to jail or had to pay back taxes. Transaction to and from Switzerland are even heavier monitored then transaction from the black listed offshore jurisdictions, because the tax authorities have an easy game when they notice something in Switzerland, they are quite cooperative.

  • The trap of the Arms-length-Principle (The biggest problem for EU Citizens!!!)
    A lot of people have trouble with the arms-length-principle which prevents exaggerated high invoices. They think they can do everything with their offshore company and send themselves crazy high invoices for consulting purposes. If their company gets checked by tax authorities they get into trouble because they can’t prove that the consulting service was performed in real. So the invoice is not accepted and they therefore have to pay taxes as it was a regular personal withdrawal (+ a fine or even jail). So keep in mind to have some proof for your invoice. It could be a protocol, a pdf file, a powerpoint with some solutions to real problems you have in your company, you can do this by your own and send it to your email to make it look like the fulfillment of a real contract and the send the invoice afterwards. So you can show tax authorities a small timeline of initial starting the contract, fulfillment of the contract and finally the received invoice.
    The best way is to send IT software which will stuck in beta phase forever, because everybody knows that custom made software is expensive, tax authorities are not allowed to reverse engineer it so they can’t check what is inside, and if it has your company logo on it and some buttons with stuff you do then there is nothing they can complain about.

  • The Leak Problem with offshore providers
    Sadly most lawyers are dinosaurs when it comes to IT. They studied with paper, they print out everything, the laws are on paper, their whole life consist of paper, everything is paper. Paper means trails easy as that and if someone works with paper all his life he has no idea about IT. Because most old lawyers have no idea about IT they just hire a cheap IT company to digitalize all the papers for archive reasons. The security is cheap and when the law office gets a new internship or new young lawyer who knows a bit of IT he will copy all the data. Wouldn’t you if it was so easy? That’s the reason why leaks became so common these days. Anyway, even if the IT security was high for them it won’t work out good because big offshore providers need manpower, they need different employees to access the files. So even when the security is high, it is very likely that your data is on someone’s USB drive. That’s why I don’t recommend the famous offshore providers.
    The leaks are a big problem. Because the systems some providers are selling are quite good, especially from the famous Mossack Fonseca (hope everybody knows the story), but when the beneficial owner is revealed the system is compromised and tax authorities will immediately count it as misuse of structural alternatives! So you will have to pay back taxes and may face other serious charges like jail.

  • The Lawyer Problem
    It took lawyers years and hard effort to get their law license, so they don’t want to lose it. That’s why most professional offshore providers wants you to fill a lot of paperwork, for example notary certified passports, a signature for the beneficial owner structure and so on. Because with this they are 100% secure in case someone makes s**t with their company or sues the law office itself because he got caught not paying taxes so they can’t be accused for negligence. What most people forget is that you don’t need a lawyer to open an offshore company. You are always free to find your own nominee, maybe even with a fake passport (but read “The Fake Passport Fake” below), and of course you are always free to fill out the registration forms by yourself. For the lawyers it is legal to open companies, what makes offshore companies illegal is the way you use them. And for EU citizens there is no legal way to pay 0% tax. You just can hide it so the tax authority can’t trace you, but in case you get caught, it’s not the lawyers problem, he just sold a company.

  • The bank account problem
    Good, cheap Banks don’t want offshore companies anymore! Because of AML Laws and international pressure they need to do a lot of paper work for offshore companies and the risk to accidentally violate Laws and get a big fine is too high. So having offshore company clients is not profitable for them anymore. That is the main reason why almost every offshore provider just gives “assistance” to open a bank account. In most cases you will be declined when you try to open a bank account at a well-accepted big well know bank. Opening a bank account is a pain in the a*s. That’s why most offshore providers just hand you over to the famous offshore banks like Euro Pacific Bank, Vanuatu Private Bank etc. The problem with them, is that they are quite expensive and the chances of a leak are high because everybody knows that these banks mainly have tax avoiding offshore companies as clients, so client information are quite good sellable to governments. And keep in mind that these banks are HIGHLY monitored. Be sure that every direct transaction from your regular business account to one of the famous offshore banks is reported to your tax authority.
    And by the way, chances are high that your nominee is already blocked to open a bank account at your chosen bank.. And also keep in mind that offshore banks love to go bankrupt, take all the money with them and found a new bank because they know they will again get a lot of stupid customers…. .
    Or sometimes offshore banks get their banking license revoked because there are too many shady transactions. Just look at Choice Bank right now…

---list will continue in next post---
 
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#2
· The Big 4 Problem
Their systems work, yes, but they only work for big international enterprises and not for small/mid sized companies because they better go with paying taxes then paying for their consultancy and account keeping invoices, because for small/mid sized companies they are almost as high as paying taxes… . And the worst is that especially for small sized companies they sell out of the box company formations for a hell of money. They provide almost the same service for example sfm offshore does for you but sell it fo 20-50 times more. The only benefit is that the big 4 will also manage your accounting. But for small/mid sized companies it is definitely not worth the money. If you started business with them you normally continue with them until you get leaked, because if you want to cancel they blackmail you in a subtle way. Before I started my own service I had an offshore structure at one of them, payed a lot and got leaked.


· The Fake Passport Problem
Yep, when I started I used them too. They are cool for EMIs if you temporary hold money on EMI Accounts but when it comes to real banking and saving real money then you won't hold up that fake identity for long. I met a lot of people crying about their lost money after the bank noticed their fake passport and froze their bank account. (Me included!) Because what do you want to do? Tell them you used a fake passport and face a few years in jail, face a tax payback or would you rather accept the loss and go on? That’s a way the famous offshore banks make a good amount of money, they are accepting fake passports quite easily, after you deposited 100k € they miraculously put you into internal revision and tell you that they need more information about you to comply with AML laws. It will be hard to maintain your fake identity. They also are participating in Networks like kyckr to share KYC info, so if you have used a fake passport at one EMI which blocked you, chances are high that all your EMI Accounts with the same passport get blocked and you will never see your money again.

  • The Tax Authority Problem (mostly for Germans and French)
    Every Country in the EU has different laws when it comes to taxes. Some tax authorities accept invoices easily, some don’t. When you are operating in Germany or France you have the worst tax authority, they are checking invoices quite hard and request a lot of proof if the service was really done. Therefore for these countries I always suggest to have a second company in one of the countries with a more “carelessly” tax authorities. These countries would be Malta, Cyprus, Netherlands and Gibraltar. Especially Malta and Cyprus are good. If you keep track of the arms-length-principle and are able to show a good timeline of the service you received from your Malta/Cyprus Company then there is nothing they can complain about because they are forced to accept it because of diplomatic reasons. When your money is in the other country you have a lot more possibilities to transfer it to other real 0% offshore jurisdictions.


  • The „It’s all legal“ Lie
    If a lawyer tells you that it is 100% legal to “save” taxes it is 99% wrong. Because paying 0% tax is only legal for a real small group. The only legal ways to pay 0% taxes are:
    -Being a big international enterprise which doesn’t pay out the profit and store it in tax haven
    -Being a perpetual Traveler
    -Living in a tax haven for 183 days of the year
    Lawyers all the time come up with new “interpretations” of the tax laws but that doesn’t mean that your country is interpreting them this way. If you still live in your regular EU country, make decisions in the name of your offshore company while living in your country and get money at the ATM for example from your offshore company then you are actually legally obligated to tell this your tax authority and pay taxes for this income. Everything else is a misuse of structural alternatives and therefore illegal ! Easy as that. Just ask yourself, why did so many people had to pay back taxes or went to jail after the big leaks like Luxleaks, Panama Papers etc.? Why do tax offices fear leaks so much and why Mossack Fonseca immediately went into bankruptcy after the leaks? The answer is, because it never was legal for the end customer, they just made offshore structures where it was impossible for tax authorities to identify the beneficial owner. That’s all the magic. After tax authorities got the documents and were able to prove, that you are in charge of an offshore company and getting money from it while living in your regular country they will sue you. So ask yourself, was it ever legal for you if you had to pay back taxes or go to jail after tax authorities got your offshore documents?

  • The Bitcoin Misunderstanding
    They are not as anonymous as everybody thinks. This is a complete misunderstanding of the blockchain. The blockchain makes every, literally every, transaction traceable. Right now governments are too slow to adapt to this, but they will one day, and then all the guys who thought paying an offshore company invoice in BTC is a good idea, will get a letter from the tax authorities because they were able to trace down the offshore bank account in the end from where you get your payouts and will start an investigation on you. However, if you have the balls to use a fake passport (which is a serious crime in EU countries) then tracing can be stopped or at least be slowed down a lot.
    Try to look for a BTC accepting EMI which doesn’t give you an own wallet from which you transfer BTC to other wallets. This is the grey zone version of a Crypto Mixer, because then the wallet you are transferring to will not get your actual BTC (which makes it easy traceable), no, you will transfer BTC from someone else.
    Of course you can also use Crypto Mixers, but right now they are heavily monitored because of the Dark Web Markets. They are even shutting down some these days. Best way would be to find someone who has a private mixing pool and doesn’t live in the EU or is a perpetual traveler. With this constellation there are some ways to cut the ties between your actual BTC wallet and your payout BTC wallet. If there will be no leaks, it will impossible for your tax authorities to trace your payout wallet. But use your payout wallet with care because don’t forget, the Blockchain is visible for EVERYBODY.


  • The Office Address and Nominee Problem
    The offshore providers would not be able to make prices like 790€ for an offshore company if they wouldn’t register thousands of companies at the same place and use the same nominee for every company. Since at least after the big leaks every tax authority know all registered agent addresses and all nominees. They have systems which scans bank transactions with theses addresses and/or nominees. And by the way, if you already bought an offshore company, just google your company address… . Tax authorities even have a much better way to search for these addresses, because they get more data, like registry data, bank data etc. The system most EU tax authorities are using is called XPIDER which was developed in Germany. I personally saw it in action because as an IT guy myself I know people working for “Deutsche Börse” which developed this search engine. If you googled it, trust me it is not just searching eaby and amazon anymore. We have 2019, it searches bank data, stock trades, social media, credit card transaction and and and….. It’s like the European pendant to PRISM.

    Go into a poor country and buy a nominee nobody knows. Get his power of attorney, and rent a small office in your chosen tax haven. Then establish the company and open a bank account on his behalf. It will be a lot more expensive then the out of the box services but it will be worth it if you don’t want to have trouble with your tax authority! Never rely on the offshore providers nominees and addresses, since they are mostly all leaked right now.

  • The Unstable EU Problem
    The governments from EU countries are missing money. They primarily blame the tax avoiders for this problem. So there are a lot of parties and people in the EU parliament who look for new laws to fix tax loopholes. You will never know how for how long Cyprus, Malta, Gibraltar and Co., will be “tax havens” or “transit countries”. This could change from one day to another.
I hope I could help some people with these information and open their eyes to not make too quick decisions when going offshore. The offers in the internet look easy, they look cheap but in the end they are not responsible if you get caught avoiding taxes, it is just your own problem. The lawyers make money setting up the company for you and the make money again defending you in court… . When I started in this scene I got leaked at one of the big 4. Since then I realized how the offshore market is working because I went through all the s**t. I had it all, blocked EMIs, missing funds at rubbish offshore banks, stolen btc from btc exchanges, police raid, tax repayment and and and… . That’s what the offshore providers don’t tell you about. Then I became a perpetual traveler and since then I had no more problems. But of course being a perpetual traveler is not possible for everybody, so you have to decide if you are willing to take this risk or not.
 
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#4
Nice writeup.

Belize, Seychelles, Panama etc. Problem: Direct payments for services have basically been impossible for the last quarter of a century, mainly du to unwillingness of clients to accept it.
Switzerland Problem: Banks in Switzerland are operationally better than most other banks elsewhere ... just don't count on them not snitching.
The trap of the Arms-length-Principle: Indeed this is an issue at times
The Leak Problem with offshore providers: Which is why even today you are well adviced to get a numbered account
The Lawyer Problem: International tax planning requires a lawyer, but depending on where he is located he might be working for the enemy
The bank account problem: Indeed ... even banks in the offshore location of your company will turn you away
The Tax Authority Problem: Avoid the plague
The „It’s all legal“ Lie: Truth is it doesn't matter if it is all legal.
The Bitcoin Misunderstanding: Correct, but not a huge issue in most cases
The Office Address and Nominee Problem: Correct
The Unstable EU Problem: More like the greedy politicians problem.
 
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#6
Looks good. As an EU (dual) citizen and former resident in various EU countries, I will add one more

Milking Cow (for a little while longer)

If you register as non-resident and relocate to a no tax or low tax jurisdiction, the EU country (7 of 28) will keep you on the hook for 2-3 more years, even if you cut all ties and are bona fide non-resident by all residency tests imaginable.

For example, a French tax resident can not immediately save any taxes by becoming a perpetual traveler/digital nomad, or by relocating BVI or Monaco.

He would first have to relocate to another EU country, live there for a year, and then relocate once more to a tax haven to realize any tax savings. A high tax place like Canada will also work in place of "another EU country".

PS! This problem also applies to US residents who live in California. The state of CA does not recognize residency changes to tax havens outside US, but it's possible to relocate from California to another US state, and from there to a non-US tax haven.
 
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#9
@OTR365, I am German, in Germany you are taxed regarding on your residence and your center of life. So I just need to take care to provide enough evidence to tax authorities that i don't live here and don't have my center of life here. They are asking me for bills and some confirmations like hotels, groceries from different countries. Most of the time I am traveling between USA, Thailand, Dubai, Germany and Austria. Therefore i have limited tax liabilities (beschränkte Steuerpflicht) just for income I get directly in Germany, and yes I get a little and pay taxes for this. If I need to have this, I don't know, my tax advisor told me to have a little income here so they get a little and they don't think I am avoiding everything, So I just did what he said. And as I can tell you, the Woman from the tax authority I am in contact with is quite overstrained, she just confirms everything because she has no knowledge when it comes to PTs. So my tax advisor asked them for a legally binding confirmation about my status and how I have to pay tax and they confirmed. So when I don't change anything then I should not get into trouble and I really think that they just don't care about me because it will be too much work and a too high uncertanity when it comes to tax laws for them. Tax in Germany is so fu***ing complex that I doubt that even anyone truly knows what's right or wrong. It looks like they just let me do my thing before making anything wrong themselves.
 
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#10
Sorry Edit time was over, so new post.
@OTRS365 and by the way, I think there are a lot of misconceptions when it comes to PT. For example I always read that it is a big problem to have a contract for a gym, or a mobile phone contract etc. because this would prove your center of life. I have both. I just told the tax authorities that it is economically easier for me to have gym contract for the whole year and told them some reasons. For the phone contract I told them that it is impossible for me to hand out a new number to everybody, that I feel discriminated for not letting me have a phone contract in the country i wish and that in case there will any charges from old business against me they would not be able to contact me or find me. I again let them confirm this and they did.

@Martin Everson Thank you :)
 
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#11
@neweraoffshore Thanks for the information.

The application of CRS and other rules seems to vary from country to country, even within the EU. I have a similar "beschränkte Steuerpflicht" in my country of birth. I haven't had issues with the tax office (thus far), and didn't even need to prove my 'center of life'. If they tried to deny my tax status, I would go nuclear and hire a tax lawyer. That alone would be enough to scare off a small town tax clerk.

But if I tell a bank or a brokerage house I have a limited tax liability in my country of origin and give them a foreign residential address, they insist I should have a foreign tax id. They refuse to believe a person does not have a foreign tax id because he hasn't been staying anywhere over 180 days/year. I already got booted out by a stockbroker in my home country for this reason. I am reluctant to give up my EU (SEPA) bank accounts.

I solved the issue (temporarily) by cutting down on traveling and getting a tax residency in Cyprus. I have more or less given up a hope to be a PT, and I am instead looking for a residency in a low capital gains tax jurisdiction that does not require full 6 months of presence/year. Andorra and Georgia fit the bill, but I'm not too enthustiastic about either.

It seems PT lifestyle would work for me only with non-CRS banking, but perhaps I'm doing something wrong. German banks don't give you any trouble?
 
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#12
OTR365 said:
I solved the issue (temporarily) by cutting down on traveling and getting a tax residency in Cyprus. I have more or less given up a hope to be a PT, and I am instead looking for a residency in a low capital gains tax jurisdiction that does not require full 6 months of presence/year. Andorra and Georgia fit the bill, but I'm not too enthustiastic about either.
Click to expand...

I'm an EU citizen too and had a similar problem. A residency in Paraguay worked for me. No presence required.
 
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#13
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#15
amuss said:
Hey! Paraguay permanent residency seems cool for my purpose. How was it for you to obtain it? Could you please give info or advise? Thanks.
Click to expand...

I used the service of ParaguaySolutions. Very professional, nothing to complain. It was a little tricky to get to Asuncion but once there they took me to a bunch of places and seemed to know everybody.

The ID was delivered by courier a couple months later.

I've been told it's super easy for EU citizens, not so much for Asians/Africans.
 
#16
The Senate of Paraguay wishes to eliminate, in the course of its planned tax reform, the territorial tax system In the future, any income tax residence worldwide in Paraguay must be taxed locally.
With only 10% tax burden, However, it is in the nature of the states to significantly increase the tax burden after the expansion of the tax base.
Unfortunately, the situation in Paraguay does not seem so bright. The law was publicly discussed and adopted by a narrow majority by the Paraguayan Senate. Although the law on planned tax reform, including the abolition of the territorial system, has not yet been ratified by Parliament, its approval must be assumed. Nor is it likely that the president will pass the law, so Paraguay is expected to collect taxes on world income from 2020
If you don't spend more than 180 days there no problem, but you don't get a tax certificate or tax number
 
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#17
andres33 said:
The Senate of Paraguay wishes to eliminate, in the course of its planned tax reform, the territorial tax system In the future, any income tax residence worldwide in Paraguay must be taxed locally.
With only 10% tax burden, However, it is in the nature of the states to significantly increase the tax burden after the expansion of the tax base.
Unfortunately, the situation in Paraguay does not seem so bright. The law was publicly discussed and adopted by a narrow majority by the Paraguayan Senate. Although the law on planned tax reform, including the abolition of the territorial system, has not yet been ratified by Parliament, its approval must be assumed. Nor is it likely that the president will pass the law, so Paraguay is expected to collect taxes on world income from 2020
If you don't spend more than 180 days there no problem, but you don't get a tax certificate or tax number
Click to expand...

Thanks, any links to that?
 
#18
andres33 said:
If you don't spend more than 180 days there no problem, but you don't get a tax certificate or tax number
Click to expand...

In my case I never bothered getting a TIN there. With the ID and a certificate of residence (you get an official one stating your address in the country), I was able to open offshore bank accounts and register companies stating Paraguay as both my residence and tax residence. A TIN was never an obstacle because it's not mandatory to have one in Paraguay. I don't live in Paraguay nor do most people seeking this kind of solution so it doesn't seem that the reform, if it passes, will change anything.
 
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#19
andres33 said:
The Senate of Paraguay wishes to eliminate, in the course of its planned tax reform, the territorial tax system In the future, any income tax residence worldwide in Paraguay must be taxed locally.
With only 10% tax burden, However, it is in the nature of the states to significantly increase the tax burden after the expansion of the tax base.
Unfortunately, the situation in Paraguay does not seem so bright. The law was publicly discussed and adopted by a narrow majority by the Paraguayan Senate. Although the law on planned tax reform, including the abolition of the territorial system, has not yet been ratified by Parliament, its approval must be assumed. Nor is it likely that the president will pass the law, so Paraguay is expected to collect taxes on world income from 2020
If you don't spend more than 180 days there no problem, but you don't get a tax certificate or tax number
Click to expand...
Sounds like an improvement from our standpoint.

You have a state that just introduced 10% income tax ... and is largely unable to collect it ... set to claim no longer to be territorially based ... and having no ability to collect anything from the outside.
 
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