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Offshore Investments: Where the Billionaire Keeps his Money

This article is concerned with passive income, and how to invest internationally like the absolute elite.

First, a question:

“I’ve got a significant amount of funds that I don’t have any immediate plans for. I don’t want to lose money to inflation, but I don’t trust the stock market, and I don’t just want to park it in a CD and take the paltry return. I’ve gotten burned by the real estate market, and I already invest in gold. Would love to hear your advice on other investments available offshore…”

If you’ve already handled the basics like an emergency fund, and you don’t have any debt, it is wise for you to start investing outside your home country, and generate passive income offshore.

Despite offshore myths, offshore investing is completely legal, completely legit, and you are hedging against sovereign by placing multiple flags around the globe. Besides, Mitt Romney invests offshore

Offshore investment benefitsoffshore investments

  • Currency diversification
  • Potential for Increased profits (due to currency arbitrage)
  • Potentially Lowered Risk
  • Better Estate Planning
  • Potentially Lowered Taxes

When building wealth, don’t think small and local, think big and think international.

What your financial advisor doesn’t want you to know…

Your financial advisor doesn’t want me to tell you this, but if you invest only in your country’s markets – you are putting all your eggs in one basket. Your stock broker only has access to boring public stocks in your home jurisdiction.

Your stock broker doesn’t have access or incentive to introduce you to an emerging markets private equity fund, or inform you about a gold backed debit card, or help you establish an offshore trust. Likewise, for attorneys or accountants – most never work outside their home state, let alone country – but that doesn’t mean you need to restrict your investments to a domestic perspective.

This article deals with offshore asset classes including:

  • Offshore Bank Accounts
  • Foreign CDs
  • Offshore Equities
  • Foreign stocks
  • Foreign Trusts

Where the billionaire keeps his money

Offshore Bank Account

offshore investmentsIf your income is probably over 90% in one currency, this represents a currency risk. If you earn money in United States dollars, or Euros, then you are entirely dependent upon one currency bloc – which is risky. The first and most basic step to diversify internationally is to hold cash in an offshore bank account in a fiscally responsible country like Singapore or Hong Kong. The banking systems, governments, and currencies in these jurisdictions are stable, and you might even get a small return on the currency. Furthermore, you still have easy access if a business opportunity or personal problem arises. However, even in foreign currencies, holding fiat money is a losing game. Therefore you might consider a…

Foreign CD

Not all banks are the same. In the US, a 1% return on a savings account would be considered ‘high yield’ whereas a CD in Panama, Mongolia, Cambodia or Sri Lanka could easily fetch 10%+ in a fiscal year. This is because the banks are tighter on credit, and the growing economies have a large demand (companies that need to borrow) with a smaller supply (fewer private equity funds/lending houses).

If you are looking for a high yielding certificate of deposit, look to emerging market economies. Not only will you receive a higher return at an equivalent risk, you will also have further diversification in a different currency – and could even leverage your gains using currency arbitrage.

In the past year, Americans have been restricted from opening accounts in some jurisdictions. I’ve reported on this before and explained that Americans can still get a bank account in Singapore, but not in a personal account. In the FATCA age, these accounts are only possible through an offshore company such as a Belize LLC or BVI company.

Foreign stocks

If you are looking for something with a bit more risk, you might consider a foreign stock in a publicly traded company. Sometimes you can achieve exposure to foreign stocks on your native stock exchange, by trading an ADR on the New York Stock Exchange for instance. However, not all stocks are traded, there are minimum balances, and there are often high fees. Oftentimes, it makes sense to open a foreign brokerage account. If you want to reap profits from foreign exchange without having a full understanding of the market, you might consider entering a…

Foreign Hedge Fund

A hedge fund differs from a mutual fund in two main ways: 1st, unlike a mutual fund, the investment firm is legally allowed to ‘short’ the market, or place trades which anticipate a drop in the market. Secondly, they are restricted to qualified investors in the United States, which means that you must have a certain level of net worth. If you are from other countries of the world, similar rules may or may not apply. Another reason you might consider an alternative citizenship is that you can gain entry to investments for which you would not otherwise be eligible. If you have an even greater risk appetite, and want to get outside just publicly traded companies and gain access to an even juicier fruit, you might consider a…

Private Equity Fund

PE funds are some of the riskiest, and highest return investments you can make because they blend entrepreneurship and investing. They allow investors to get business operation type returns because the fund will lend cash and expertise to an active business.

I am a huge proponent of private equity because it puts money back into the business and commerce in a useful way, which propels society forwards, and provides a greater quality of life for the world. Emerging market private equity funds are the highest return investment you can make. An emerging market has huge potential for even basic business provisions, so the risk is somewhat diminished and the profits are huge. More on this in another article.

Offshore Investment Vehicles: Legal Entities

If you do business outside of your home country, a legal entity is oftentimes a requirement, and can sometimes be advantageous for tax purposes. Although there is the constant perpetuation of the offshore myths, people are scared away from offshore companies – however, they are highly useful for many different applications, one of which could involve offshore investments.

Foreign Trust

If you are going to invest offshore, it might make sense to open a foreign trust. This can help for estate planning purposes, protect you from lawsuits, and help pass wealth down through generations. A trust is composed of essentially 4 parts:

  1. The founder, who founds and places assets into the trust.
  2. The trustee, who you trust to keep the assets safe.
  3. The beneficiary, who benefits from the trust being set up.
  4. The protector, who protects the trust by exercising veto power over the trustee.

The problem with trusts is that they are incredibly useful for passing wealth to the next generation, but they are usually taxed transparent (meaning have no effect) for the founder of the trust. An alternative to a trust might be..

Offshore Life Assurance / Insurance

Life assurance is different from what people are accustomed to with life insurance. Life insurance means that the beneficiaries of the plan will receive money when the founder dies. However, life assurance means that the founder will be paid a specific amount of money for the remainder of their life.

Insurance and assurance provide advantageous investment vehicles through which other investment opportunities can be explored. In other words, the assurance or insurance plan is the car for which other investments can sit in (such as bonds, notes, stocks or funds). They can also be used in conjunction with a trust:


Through this type of set up, you have an estate planning, low tax, income producing investment vehicle with a guaranteed return. The trust assures that the assurance plan does not go to probate (which is expensive, and a government could try to seize). I have relationships with several firms who are vetted and well established in these procedures.

Why use offshore life insurance or offshore life assurance?
Offshore life insurance can provide superb gains, tax deferment opportunities, and is an investment vehicle of the ultra rich. Obviously, this is the nature of which would need to be discussed with a CPA, and lawyer. However, it’s quite possible to pay NO taxes on capital gains and pass your estate to your heirs with no negative tax connotations. Considering the death tax is as high as 55%, this may be something for you to look into.

In general, foreign life insurance/assurance is treated the same as domestic life insurance; however, this is only if the foreign policy has provisions that comply with the US definition of life insurance.

Modified Endowment Contract: Gritty Details

Furthermore, one should realize that only if the policy is NOT a modified endowment contract (MEC) can you, the policyholder, borrow against the cash value of the policy without owing a tax on the loan.

For a life insurance contract to not be considered as a MEC, in general, there will have to be 7 or more equal annual premium payments. A single premium life insurance policy is a MEC and the tax treatment will be similar to an annuity contract. Loans against a MEC policy will be taxed like annuity distributions.

Legally Avoid Excise Taxes In Switzerland

offshore investmentsOne major distinction between a foreign life insurance policy and a domestic policy is there is a 1% excise tax on the premiums paid to a foreign life insurance. The tax must be paid with a quarterly return (Form 720) that is intended for an assortment of excise taxes. A further workaround for this situation is using a Swiss life insurance company because Switzerland exempts Swiss life insurance policies from this excise tax.

However, use of the treaty to avoid payment of the excise tax requires that the policy owner include Form 8833 with his or her tax return in each year when premium payments are made.

Until the 1997 Taxpayer’s Relief Act, it was legal to make a tax-deferred exchange of a U.S. life insurance contract for a foreign life insurance contract. The 1997 law included a provision that some commentators believe prohibits tax-free exchanges of life insurance or annuity contracts from the U.S. to a foreign insurer.

Offshore life insurance is a very interesting financial instrument. There is a powerful lobbying influence of the life insurance industry in Washington. As such, insurance is a tax-advantaged investment vehicle. A US tax complaint offshore insurance policy is a conservative and cost-effective investment vehicle for Americans.

Asset Manager for your Offshore Life Insurance

Offshore life insurance gives the investor a chance to select an asset manager, whereas a retail insurance product does not, and it can be used as an investment vehicle whose main goals are income, capital gains and estate tax savings. The proper structure also allows for a high degree of asset protection, while maximizing investment choices and incurring as little insurance cost as possible.

Offshore life insurance is an amazing opportunity to minimize or eliminate taxes, particularly on estate taxes; but something that must be tailored to your individual situation. For those who have less capital, want more direct control over their liquid assets during their lifetime, and still want to invest in foreign stocks, bonds and other financial opportunities, starting a bank offshore may be an answer.

Implementing an offshore life insurance as an offshore investment vehicle is sophisticated and there are drawbacks or many traps for the unwary. Some of the tax traps that have to be addressed for your specific situation, which you should discuss with a tax professional, are the following:

  • Investor control rules
  • Compliance with the diversification rules of IRC 817(h);
  • Unforeseen gift taxation (if not transferred properly)
  • Paying the premium and funding the Vehicle (critical that this is done correctly)
  • MEC vs. non-MEC status – especially if you will withdraw funds from the policy during your lifetime.

The Ultimate Investment: A 2nd Passportoffshore investments

Regardless of your outlook of the coming years – doom or boom – it makes complete sense to diversify yourself and your wealth internationally. The best way to do this is to set up flags internationally, by following the 60-year-old system of Flag Theory. The first flag is a 2nd citizenship in a country that doesn’t tax you on your worldwide income.

If you have any amount of wealth or affluence, it is prudent for you to be investing internationally. Also, if you are looking for offshore life assurance, contact me.