Three Cautionary Tales—How Not To Go Offshore
I’m hearing regularly from readers struggling with how, specifically, to get started planning and benefiting from a life diversified offshore.
Should they start with a second residency… many want to know…
Or an offshore bank account?
Is a property purchase a good initial step… or would it be better to open an offshore structure first?
The answer, of course, depends on the individual and your circumstances. Every situation is different.
However, I realize that might seem like a cop out.
How, exactly, should you begin piecing together your go-offshore plan?
Perhaps these cautionary tales of what not to do will help you answer that question.
First, Not Everyone Needs An Offshore Corporation
Years ago, an attendee at a conference came up to me to ask what I thought she should do with her Panama corporation.
She’d formed it, she explained, while in Panama on vacation with a friend a few years earlier. The friend had set up a Panama corporation on a previous visit and told the woman that she should set one up, too, so she could “do things offshore.”
So she did.
She used the same attorney as her friend had used… and then returned home from her holiday the proud owner of a Panama corporation.
Three years later she was back in Panama at our conference asking me what to do with it.
She wanted to do something with this company she’d invested in forming, she told me… anything… as it was costing her more than US$500 a year to maintain the entity. She wanted to get some value out of it.
This woman had no use for a Panama corporation… not when she formed one and not three years later when I spoke with her.
But she’d formed one. Why not? Everyone coming to Panama should set up a corporation, right?
My advice was to let the corporation die on the vine. Should she ever find herself with a need for a Panama corporation, she could set up a new one then. Meantime, she’d save herself the annual fees.
The lady wasn’t happy with my recommendation, but I’m glad to be able to report that she did take it.
Second, Not All Offshore Attorneys Can Be Taken At Their Word
That cautionary tale leads to another, related one…
In the years since Panama launched its Friendly Nations residency program, I’ve heard from many dozens of readers who have set up a corporation in Panama for that reason—as part of the process of qualifying for a Friendly Nations visa.
After the application has been processed and the residency visa approved, the corporation is no longer required. Readers write at this stage asking me to confirm what the cost should be for shutting down a Panama corporation.
Their attorneys, they report, have sent them quotes for closing their corporations that seem out of line.
“It doesn’t really cost that much to shut down a company in Panama, does it?” they want to know.
Honestly, I have no idea what it should cost to formally shut down a corporation in Panama or anywhere else.
What I can tell you is that, if you have not been using the corporation to transact business, you do not need to formally shut it down. You can simply stop paying your annual fees. Eventually, the corporation will be stricken from the register.
Of course, attorneys don’t like that strategy because it means no fees to them. Attorneys (in Panama and elsewhere, too) will insist you must file formal paperwork to close a corporation… and they’ll quote crazy fees for facilitating that process. I’ve seen paperwork from attorneys asking for fees that were multiples of what it had cost to set up the corporation in the first place.
These attorneys aren’t acting in good faith. They are trying to milk unsuspecting clients.
The lesson here is: Don’t believe everything an offshore attorney tells you.
Third, You Don't Have To Buy What Your Attorney Is Selling
Here’s one more cautionary tale for today… about a reader who wrote to ask about the holding structure she had formed for properties she’d bought in Costa Rica and the Dominican Republic.
My recommendation for someone who owns or who will be purchasing property in multiple countries is to use an offshore LLC from a jurisdiction like Nevis or Belize as the holding structure. This strategy helps mitigate the impact of probate. Your heirs only have to manage the probate process in one country (the country where the LLC is located) rather than in every country where property is owned.
The reader had wanted to follow that recommendation but was unable to because each of the attorneys she was working with for the property purchases (in Costa Rica and the Dominican Republic) had insisted that a foreign entity couldn’t hold title in that country. The attorneys had forced the reader to open up separate corporations, one in Costa Rica and a second one in the DR.
While they did use the offshore LLC as the owner of the two corporations, they had lied about the need for the additional corporations in the first place. Both sold her unnecessary entities… because that’s what they had to sell.
This reader was still enjoying the probate benefits of the umbrella LLC… but was also incurring unnecessary ongoing expenses associated with the superfluous entities.
What should she do… she wanted to know…
She could have retitled the properties, but that, too, comes at a cost… that I advised she weigh against the ongoing cost of the entities.
The cost of any flag planting you do has to be analyzed in the context of your situation overall and your goals. Don’t do something because you read somewhere online that it’s a good idea… because your neighbor or friend did it… or because your attorney insists.
That last caveat, I realize, can be sticky. Why have an offshore attorney if you aren’t going to take his advice?
Because you can’t trust all offshore attorneys. I’d go so far as to say you can’t trust most offshore attorneys.
Most offshore attorneys have one or two preferred hammers in their tool box, and they will use them to hammer away to generate fees until kingdom come… whether those tools are actually getting the job done for you or not.
That’s my unfortunate conclusion after having been immersed in the offshore world for nearly 25 years.
And it’s why a good offshore attorney recommendation is one of the most valuable things anyone can ever give you.