Let's Talk Opening an Entity for Trading (foreign and US)

[obnoxious2]

Saw discussion in the criminal sticky thread and decided to open this thread to keep that thread on topic. I saw this post:

If you are a registered company in the USA can you trade using overseas criminals?.

Maybe you should reverse your thinking. If you registered a company overseas can they stop your company from trading overseas?

and it got me thinking. I've never opened a LLC or a shell corporation and was hoping those who have experience opening one to chime in some advice. As I'm a US based customer I'm hoping I can open a shell entity here or abroad to circumvent CFTC rules legally.

[garyfritz]

I do my trading in an LLC but it's US-based, so regulation-wise it gets treated the same way I do. It saves me some taxes but it doesn't get me out from under the CFTC's heel.

Opening a company in another country might do that, but I have no experience with it. Be aware that opening and maintaining a foreign corporation is not cheap, so you could only justify it if you had a pretty good-sized account. Also be aware that unlike almost every other country in the civilized world, the US thinks they own you no matter where you live or where you earn. If you're a US citizen, you owe taxes on your profits even if your corporation is based in Seychelles or Isle of Man or wherever. Not recommended to try to hide profits offshore, because if the IRS finds out about it, you'll be enjoying the dubious hospitality of Club Fed for many years...

[obnoxious2]

I do my trading in an LLC but it's US-based, so regulation-wise it gets treated the same way I do. It saves me some taxes but it doesn't get me out from under the CFTC's heel.

Opening a company in another country might do that, but I have no experience with it. Be aware that opening and maintaining a foreign corporation is not cheap, so you could only justify it if you had a pretty good-sized account. Also be aware that unlike almost every other country in the civilized world, the US thinks they own you no matter where you live or where you earn. If you're a US citizen, you owe taxes on your profits even if your corporation is based in Seychelles or Isle of Man or wherever. Not recommended to try to hide profits offshore, because if the IRS finds out about it, you'll be enjoying the dubious hospitality of Club Fed for many years...

I know for indviduals that if you pass the bona fide residence and physical presence test then you can exclude to the max of $92,900 of income (I can only dream of making that much in Forex). But I'm not sure how it works if you have a shell corporation. Would it be only up to a certain % of income or all of it.

The main reason is not for anything illegal. I just want more leverage available which will allow me to up my lot size without risking more in my leverage %.

[garyfritz]

Hm. You are right: this IRS page discusses the exclusion. That's something to keep in mind.

I would assume a shell corp would work the same, if it was a US corp. You would file taxes on it and file for the exclusion. Though I don't know how a corp would satisfy the residency/presence requirements. If it's a foreign corp, then I assume it would be governed under the rules of the country it's created in, but you personally would be subject to US tax laws when you drew money out of the corp.

[skoda2008]

Glad to see I got somebody thinking!

I have no idea what rules the US may have about maintaining a foreign company, since I'm in Australia, but as long as you are declaring any income (directors fees or however you withdraw money from the company) in your US income tax I don't see how you are doing anything illegal. We have the same kind of set up in Australia - you are obliged to report any source of foreign income and be taxed locally.

If a company was set up in some of the dodgier juristictions that don't require annual reporting or directors names to appear on a register (Nevis springs to mind). Would it then be illegal for your company to incur expenses in the US on your company Bank of Nevis Visa Debit/Credit card?

[garyfritz]

But let's say you, as an Aussie citizen, moved to a country with no or low income tax, and proceeded to make a nice living trading. You have full-time residence in this country and they don't require you to pay income taxes. Do you still have to pay taxes in Australia?

Other than the very interesting exclusion that Mr. Obnoxious just educated me about, I think US citizens DO have to, and I think it is very nearly the only country in the world to do so.

If a country has a tax treaty with the US, then any taxes you pay there are credited against your tax bill in the US. But if the US wants more taxes than your new home (not that THAT would ever happen... ), then you pay what your new country of residence wants, and then you pay the US the difference between their taxes and US taxes. Even if you live, work, and earn in another country.

[skoda2008]

I see, that does suck!

Don't quote me because I'm not an accountant, but I believe you would only have to pay tax in your country of residence at the time. If you returned to Australia, then for that financial year you'd have to do as per your third paragraph.

[Captain Jack]

You can get a lot of information here at this site, they specialize in these off shore type deals. They satisfy the residency requirements by providing a "virtual office" in the country of choice...all for a fee of course. I am considering this as more and more non-US brokers are dropping US clients due to the CFTC. Hotforex just went this way and no longer takes US clients as well as giving them until Jun 5th, 2012 to close out trades.

http://www.slogold.net/

CJ

[d4amenace]

You can only be taxed on repatriated funds in the US. If your overseas corp makes money and you have an overseas debit card you cannot be taxed by US for spending the money overseas. (and even shipping purchased items here). They could probably pursue you for taxes on the value of the goods but only as import tariffs. Which I believe don't exist anymore (correct me if I'm wrong). If you have overseas corp and debit card and spend money here, it would be difficult for US to pursue you unless they have a strong tax treaty with your corp's issuing bank country.

[garyfritz]

You'd better check with a good tax pro on that. I've always read that the US is one of 2 or 3 countries in the world that taxes your income WHEREVER you earn it in the world, even if you don't live in the US. Other than the exclusion mentioned above, as long as you're a US citizen, they tax you on whatever you make, wherever you make it. No need to repatriate it to get taxed on it, doesn't matter if it's in a shell corporation. (Please provide references if you know otherwise!)

You could hold the funds in an overseas corp & bank & etc but that doesn't remove your tax liability. If you don't pay taxes on it, the IRS will consider it criminal tax fraud. They get real tetchy about that.