High-Tax Country Resident Planning To Go Offshore: US

Because the US taxes its citizens on the basis of their nationality and not on the basis of their residence, the concept of 'offshore' is not very useful to a US national from a residence point of view. There is an income tax concession available during non-residence, but beyond that the only real option for a US citizen is to change nationality. In all other respects the international tax situation of an individual citizen is about the same whether they are in or out of the US (see below).

Individuals who have significant 'active' business income may be able to make use of offshore corporate tax shelters, including the foreign sales corporation (now banned by the WTO). www.lowtax.net contains details of the offshore business sectors of 35 jurisdictions, and their taxation.

Non-Residence

US expatriates who meet the Physical Presence Test (you spend more than 330 days in a foreign country in a given year) or meet the Bona Fide Resident Test (you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes at least a whole tax year) get a deduction on foreign earned income, and possibly some deductions related to housing costs. If you pay foreign taxes, it may be possible to offset these against US taxes if there is a double tax treaty with the country in which you are resident.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.

For relatively well-off US citizens, the Heroes Earnings Assistance and Relief Tax Act of 2008 (The 'HEART Act') significantly reduced the benefits to be gained from ceasing to be resident in the US.

Under its provisions, wealthy individuals leaving the country are treated as if they sold all of their property for its fair market value on the day before they expatriate or terminate their residence.

The gain is recognized to the extent that it exceeds USD600,000 (which will be adjusted for cost of living in the future).