Offshore Tax Strategies By Vernon K. Jacobs, CPA  & J. Richard Duke, J.D., LLM

Tax Rules For International Investing

There's a growing interest in international diversification among investors, but investing outside the borders of your own country usually entails extra tax complications - particularly for citizens/residents of high tax countries.

U.S. Citizens & Residents

Non-U.S. Citizens & Residents

The general rule for U.S. investors who invest outside the U.S. is that they are subject to income and capital gains taxes the same as with U.S. investments. However, the general rule only applies to direct investments and not to investments made through a foreign trust, foreign corporation (or IBC), foreign mutual fund or a foreign partnership. There are also special rules for investments in foreign annuities or foreign life insurance companies and mutual funds or investment companies. Also, U.S. taxpayers are not legally able to avoid U.S. taxes through the use of offshore tax havens.

Citizens and residents of high tax countries other than the U.S. are generally subject to income taxes on investments anywhere in the world as long as those investments are owned directly. However, in many countries (other than the U.S.) the income earned by assets held by a foreign trust or foreign corporation are not subject to tax in the resident country. If the trust or corporation is located in a tax haven jurisdiction, the income from those assets and investments may legally avoid taxes entirely. In addition, investments in certain U.S. government securities and the accounts of certain U.S. banks or S&Ls is tax free (by the U.S.) to non-U.S. investors. Non resident aliens are generally not subject to U.S. capital gains taxes on investments in U.S. securities.

Introductory information about Offshore Tax Strategies by Vernon Jacobs and Richard Duke includes information about the U.S. tax treatment of currency gains and losses, foreign banking, foreign stocks, foreign mutual funds, foreign annuities or life insurance and foreign mutual funds -- also know as passive foreign investment companies or PFICs.

Offshore Press -- Your objective resource for global financial planning

About the authors: Vernon Jacobs is a CPA who provides tax accounting and consulting services for clients with international interests. He edits and publishes the Jacobs Report on International Financial Planning.  J. Richard Duke, JD, LLM is an attorney who specializes in international tax law and is an Adjunct Professor of international tax law. Sponsored by Offshore Press, Inc. Copyright, 2002, All rights reserved. Offshore Press, Inc., Box 8194, Prairie Village, KS 66208. (913) 362-9667. Email to Offshore Press  Vernon K. Jacobs, Webauthor.