By Thomas P. Azzara (aka The Tax Haven Reporter)

Offshore Fiscal Paradises

Nearby tax havens like the Cayman Islands, Panama, Barbados, and The Bahamas have become prominent financial centers rivaling the industrial cities such as London , Tokyo and New York for business . The pint sized Cayman Islands now boast more commercial banks (530) in the commercial registrar than in all California . The dollars on deposit in these Cayman banks exceeds $390 billion , which is also more than all the commercial banks in California.

The Bahamas, just 50 miles off the coast of Florida, was once the third largest financial center in the world next to New York and London . Today the Bahamas still ranks in the top ten, just behind the Cayman Islands. There are more than 390 banks and trust companies registered here in Nassau.

The Bahamas, the Cayman Islands and Bermuda have no personal income taxes, no corporate income taxes, no capitol gains taxes, no withholding taxes, no estate, gift or inheritance taxes, no sales taxes, no employment taxes, no death duties, and no probate fees. Guarantees against future taxes are provided by these governments for periods up to 50 years. Exempt trusts can receive guarantee up to 100 years.


Question: Do you have contacts in the Bahamas who are trustworthy? What costs, will I incur in setting up a company in the Bahamas?

My partners include a mid-size Law firm with an office here in downtown Nassau and a U.S. tax consultant. These lawyers have over 40 years of business experience here in the Bahamas.

The total costs of forming an IBC (International Business Company) here in the Bahamas are as follows:

Costs to form IBC (include Government and associated fees) - $1000

Cost for registered agent (accountant and registered office, also 2 trustees for trusts) - $500 pa.

Trust instruments (2 deeds) -$300

My advice for steering you in the right direction, forming your company and opening up a company bank account - $300

TOTAL COST (First Year) = $2100 U.S.


ANNUAL MAINTENANCE (registered office, trustees, registered agent)
paid annually, from the date that the company documents are issued - $600 pa

Annual Government and associated fees - $250 pa

Our advice to these entities on a annual basis - $200 pa

TOTAL COST (2nd Year) = $1050pa US

Our law office will also be the registered office and registered agent for the IBC. (Their address, fax number, telephone number, will all be made available). We use two trusts in the business plan with a non- U.S. person (the IR code refer to them as non-resident aliens) to act as trustees.

Lawyers and Banks charge substantially more to do the same thing. Lawyers also charge extra for drafting the trust instrument. Some Law firms and Banks charge upwards of $5000 just for the trust indentures. Administrative fees at the larger local banks can also make their costs skyrocket. It is my opinion that a trust indenture drawn by a Bahamian Lawyer or trust company is all but worthless to a U.S. Taxpayer. They simply are not trained or knowledgeable in U.S. Tax Law .

Question: Is it necessary to use a trust and holding company in a business plan?

THR: We think so. It is our opinion that you should try to circumvent the United States CFC provisions (IRC 957(a)). If you are fortunate to find a foreign partner who can own 50% of your offshore company that is one recognized plan. Eleven U.S. shareholders each owning 9% of the offshore company is also a legal and approved structure for avoiding the CFC status. For the U.S. taxpayer who wants to remain independent (without partners), his plan probably should include a company and a trust as outlined in my book.

More FAQ'S from the Tax Haven Reporter

Question: What extra forms must I file with the IRS after the company is formed.

The Bahamian IBC and Trusts will legally have no income tax returns to file with the IRS . They will not be CFC's (Controlled Foreign Corporations). Neither you nor the offshore managers have to file Forms 3520, 3520-A , 5471 or any other information regarding the IBC to the IRS.

Question : Who opens the bank and securities accounts for the IBC's?

Investors will be able to open a bank and security account for their IBCs so they alone have signature authority over the accounts - and that's the way most clients want it. We have arrangements with several of Nassau's Major banks. We can provide you with the bank's application form, signature cards, bank brochures etc., so you can open your account without physically flying into the Bahamas. You can obtain a VISA and/or debit card from the Bahamas largest bank, too. You will need a reference letter from your local U.S. banker, but these are easy to obtain

The Bahamian banks we deal with have been in operation here in Nassau for over 30 years.These banks have subsidiaries in all the other tax havens, including the Caymans', Hong Kong, Monaco, Zurich, Gibraltar, The British Virgin Islands and Jersey in the Channel Islands. One is a giant British bank with more than 2000 offices worldwide. One of the banks has no offices in the United States.

You can choose which ever bank you want. With either of these banks, clients can open brokers accounts anywhere in the world and trade under the guise of the Bank's name. The clients IBC does not appear on the stock certificates, and his anonymity is totally preserved.

Masking a clients stock market trades is a traditional way of doing business here in the Bahamas and in the other tax havens . It is done by most all the major bank and trust companies. Banks in the Bahamas do not have to file tax returns with the IRS .

The Bahamian Bank Secrecy Code forbids any bank executive or advisor from giving information to any outside tax collector, attorney or foreign court.

Question : What can I invest in offshore ?

There are few restrictions as to what an IBC can investing. U.S. stocks, bonds and mutual funds are frequently bought through offshore companies because they are not liable to U.S. capital gains taxes. Treasury bonds, bank CD's, options, futures and commodities are also purchased through offshore companies. No U.S. withholding taxes are payable on such incomes as long as the IBC does not open an office or carry on other business in the United States .

Using these Bahamian Banks you will be able to trade on any stock exchange in the world at a cost equivalent to to those incurred using a discount broker such as Charles Schwab.

You can of course, call your own shots on what stocks and bonds or mutual funds the IBC purchases. You will pay only the brokers commission (=3c, per share), plus a nominal fee for having the stock certificates put in the Bahamian Banks name instead of the IBC's.

Question: You live in the Bahamas. Who are some of the big names using that haven as a tax shelter?

Business people from around the globe use the Bahamas as a tax haven. There are currently over $190 billion dollars on deposit in Bahamian Banks. Former U.S. citizen Sir John Templeton (on right), knighted by Queen Elizabeth II of England, lives in Nassau . Templeton managed over $20,000,000,000 for clients worldwide. He gave up his U.S. citizenship years ago, probably to escape the USA's 55% estate tax on estates over $2.6 million dollars . U.S. treasury secretary Nicholas F. Brady (P.O.Box N-7776) has a home in Lyford Cay. Remember it's his branch of the federal government that was responsible for writing the Treasury Regulations under IRC 951 thru 958 for CFCs back in 1962! There are forty or fifty Bacardi's (the rum distillers) living in Nassau, billionaire fashion designer Peter Nygard(on Left), Mike Dingman, Sean Connery, the list goes on and on. Incidentally, the Lyford Cay area is a millionaire's row here in Nassau.

Question: How can investors learn more about these tax havens?

My latest addition of TAX HAVENS OF THE WORLD ($75), and newsletter ($150 for 12 issues) would be most useful in helping you develop your offshore plan . As an internet special , customers that order a years subscription to the Tax Haven Reporter will receive a free copy of Tax Havens Of The World .

Tax evasion is not illegal in the Bahamas, since we do not have income capial gains or inheritance taxes. Tax evasion is not considered suitable grounds for ordering access to information about an account - from Welcome Bahamas - pg .71 Our #2 Industry Banking.

While a Bahamian Company may offer tax advantages to non-Bahamian beneficial owners under certain circumstances, it is essential that the laws of there own country be carefully considered before action is taken. Unless adequate planning is undertaken, the tax advantages may ultimately be lost to the owner. Consideration must be given to the ultimate disposition of accumulated funds "Touche Ross International" (Bahamas).

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