Tax Question

[DeletedUser394]

Say you are a citizen (by birth or naturalization) of a country (like the Bahamas) that has no Capital Gains Tax, Corporate Tax, or Personal Income Tax.

You (or your Hedge Fund/Other Fund/Company based in the Bahamas) purchases shares of a company based in the USA at $40/share.

A few weeks later that stock goes to $60/share and your fund sells its position. Do you pay capital gains tax on the sale of shares from a company outside of the tax haven country?

Or is the other company's location (in the USA) irrelevant, as capital gains tax would have to be payed to the country in which you reside (in this case, the bahamas).

I'm excited about legally evading taxes xD In all seriousness though, it is an interesting topic.

 

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[TaxGuy]

I'll have to do some more research on this, but if I were you, I would check here first before setting up any funds: Abusive Offshore Tax Avoidance Schemes - IRS.gov

Read through these two articles especially:

Abusive Offshore Tax Avoidance Schemes - Facts (Section II)

Abusive Offshore Tax Avoidance Schemes - Facts (Section V)

Keep in mind even as a Non-Resident, if you having earnings in funds from US holdings you technically have to file a 1040NR- Non-Resident, especially if you're running a Hedge Fund and making a sizable profit.

I will double check with my dad on this to be sure, but the links above are from IRS.gov so I'm sure that's the best source of info on the subject

 

[DeletedUser394]

Oh, but at that point I would be a naturalized citizen of the Bahamas, with no ties to Canada (where I live currently). So I wouldn't be quote 'avoiding' paying taxes in Canada, I would basically be following the rules of my new home country... for which there are no taxes.

I would essentially renounce my Canadian citizenship in favour of the Bahamas (or Andorra, or Cayman Islands, etc).

In general though, capital gains taxes through stock sales are paid to the country that you are a tax payer in, or to the country that the investment was in?

Because if I need to pay the US government (or the canadian or eu governments) capital gains taxes, regardless of the fact that my home country has no taxes, I see no point in going offshore. (Except for the personal income tax at 0% and the 0% corporate tax)... but capital gains is the fundamental thing that I'll need to lower or eliminate, considering the market is where all my profit will be coming from.

 

[TaxGuy]

Look at your original post:

You (or your Hedge Fund/Other Fund/Company based in the Bahamas) purchases shares of a company based in the USA at $40/share.

A few weeks later that stock goes to $60/share and your fund sells its position. Do you pay capital gains tax on the sale of shares from a company outside of the tax haven country?

No matter where you reside, if you do business in the US then you have to pay taxes in the US. This is why US businesses do the opposite- they "conduct" business in tax havens so that they don't have to pay taxes. Now as far as the US being able to pursue you in a tax haven country, unless you're doing millions of dollars in business it's highly unlikely, however, one measure they can take if they can't find you personally is to freeze your US holdings(i.e. your investment accounts), put a levy or lien on that account for the back taxes and even worse(but VERY unlikely), coax you into coming to the US to fix it so they can arrest you for tax evasion.

To answer your other question - "Why would someone live in one of those places if they can't avoid taxes?" - Uhh, because they're Island Paradises and the money you do earn there is tax free

 

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[DeletedUser394]

Alright that makes sense.

I was semi confused because I didn't consider investing in the Nasdaq (as an example) as "doing business in the USA"

So say I have a company in Canada, that invests on the USA stock markets;

-Pay capital gains taxes in the USA

Then;

-Pay corporate taxes in Canada

Then;

-Pay personal income taxes in Canada.

That sucks.

I plan on making so much money, that this won't be a problem xD

 

[DeletedUser394]

I just thought of another scenario;

Investing in a foreign company that is listed on an american stock exchange. I guess you still only pay US capital gains taxes.

Tax law is interesting!

 

[TaxGuy]

I spoke with my dad on this and it is a very rare scenario considering as I stated most base their funds in the tax haven countries and live in the US, not vice versa. Bottom line is you'd have to talk to a reputable investment company such as Merrill-Lynch or Fidelity to find out what they would do in your scenario.

Chances are they would with-hold taxes on the dividends over a certain amount(i.e. $1500+ in dividends) and at 15% it's not a big price to pay since you're benefiting from the US Economy, which is weak at the moment, but is still #1 in the world.

In addition, having Canadian citizenship is something you would only want to renounce as a worst-case scenario, is it worth jeopardizing your ability to visit family and friends to save money on your taxes? What you need is a top-notch accountant who can help you write off more investment expenses and make the amount you're being taxes 15% on much lower rather than trying to reduce the 15% to zero - lol, it's like my uncle who's a huge proponent of a flat tax and says it would put people like us out of business except for the fact that our job is less about moving people from say the top 35% tax bracket which is ~$374k of taxable income to the lower 33% bracket of ~$172k-$374k when they're earning over $1m as sometimes it's just not possible. In those cases it's more about reducing how much they are being taxed 35% on as would be the case even if it was a flat 15%.

On that note not to get political, but thank Congress for making 2 huge changes for 2010- no limit on itemized deductions(there was a cap in '09 based on taxable income) and no reduction on exemption amounts for high earners(the $3650 exemption per claim for '09 was reduced based on a wacky formula for those earning more than a certain amount).

Tax law is interesting!

Bingo! This is why it's my chosen Fastlane, especially since my dad says so himself, you can go to 10 different accounts with the same information and get 10 different results. Our goal is to get you the BEST one- meaning maximizing the proper deductions, credits and adjustments

 

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[DeletedUser394]

Speed + for all the great info!! (It's not letting me give you again xD)

As I mentioned to you in another discussion, I'm not as happy as I could be living in Canada, and the climate is really bringing me down.

"In addition, having Canadian citizenship is something you would only want to renounce as a worst-case scenario, is it worth jeopardizing your ability to visit family and friends to save money on your taxes?"

It's not only about taxes. I'm much more interested in living in a more favourable weather climate. Just like when MJ moved from Chicago to Phoenix (and your move as well), I feel that I need to move permanently as well. The only thing is, there is no favourable climate in Canada (one that is devoid of snow, with some humidity, with pleasant temperatures year round.) The closest I could get to that would be Vancouver, but the cost of living is astronomically high, and it rains practically every single day.

I have absolutely no preference in places. I'd just as easily be open to moving to Japan, Slovenia, South Africa, Brazil, the USA, or anywhere else in the world. I'm just going through all the possible scenarios so that I can choose my best fit.

I'll still be able to freely visit Canada, whether a citizen or not. (I've spoken with an emigration lawyer)

 

[GlobalWealth]

Ryan,
Canada only taxes it citizens on worldwide income while you reside in Canada. You could easily move to a tax haven country and establish residency and be out of the Canadian tax trap.

You could move to Panama and establish residency and you would not owe Canadian tax. You would not need to renounce your citizenship either.

If you are going to set up a hedge fund (as you have previously mentioned) you could use a BVI corporation for your fund and set up your management company someplace like Nevis or Belize.

At this point you would only owe tax based on your residency. If you lived in Panama you would owe no tax due to their laws.

Your investors would then only owe tax upon distribution of profits upon repatriation of their income back to their home country.

This is a common hedge fund set up. As you are not a US citizen, you have significant advantages.

 

[TaxGuy]

Although he is a Canadian citizen wouldn't he still have to pay US taxes on any dividends from US based holdings?

It is my understanding that he might have to file a 1040NR(Non-Resident), however, whoever sets up the fund would probably have a tax withholding for any US tax. An example is if I invest in a British company, they would take out British taxes on dividends and I would have a credit for Foreign Tax Paid towards my US tax return which would offset any potential US tax liability for these foreign funds. This again is why I'm sure most funds are setup in tax havens so that the dividends are completely tax free, although this is something the IRS is looking to crack down on through taxing worldwide income and only giving credit towards foreign tax paid.

 

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[GlobalWealth]

Many hedge funds are set up in offshore tax havens like BVI in order to defer the US taxes. The fund brings in investors who can defer earnings in the fund.

Once the fund distributes profits to partners, the partners are then taxed in their home country.

If the hedge fund is managed by US managers, in most cases a US LLC (or LP) is the manager of the fund and the offshore fund pays fees to the US LLC (or LP). The partners of the US LLC (or LP) are taxed in the normal way.

 

[DeletedUser394]

Do you know of any good books on offshore taxation (or hedge fund taxation specifically)? Even tax laws that are applicable in Canada and the USA.

Even if they are textbooks, it makes no difference to me.

This is just too interesting to pass up.

I'll be taking a finance major in university soon, so they'll probably cover taxation, but I'd rather be in a position to know 100x more than whatever they will teach.

It literally angers me that a government can take (in some instances) almost 50% of money that I made. As long as I do nothing illegal (I don't care whether some perceive it as unethical.. If it's not illegal, then I'll be doing everything in my power to keep my own damn money).

The more money I can keep to grow, the more money I'll be able to donate when I'm older, and the more money I'll have to enjoy while I'm alive. It's a win-win-win for me.

 

[GlobalWealth]

Ryan,
check out this site:

Hedge Fund Certification & Training | Certified Hedge Fund Professional (CHP) Designation

You can get your CHP online. It is not that expensive and it can be done 100% online. This is the 'certified hedge fund professional' designation.

You may also want to consider getting your CFA.

 

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[CommonCents]

Most US hedge funds are set up offshore. They do pay taxes on money repatriated to the US as GW states. My buddy works at a big one for Cargill and they do the same, based in the Caymans I believe.

US has laws that can tax foreigners based on their presence(how often they are here, having an office etc..) in the US as well. check on that.

check out hedgefundlawblog, that had some great information but seemed to be down when I just checked it.

We are happy to announce that the Hedge Fund Law Blog has been nominated for the LexisNexis Top 25 Business Law Blogs of 2010. We thank our audience for reading and being engaged in the discussion, and of course for the nomination.

There are a number of very good blogs which are also nominated. The blogs that I actively read include:

* Compliance Building by Doug Cornelius
* Securities Law Prof Blog
* Startup Company Lawyer

Other blogs I that are in my RSS reader and which I think highly of:

* Ten Seconds into the Future
* Reverse Merger & SPAC Blog
* Jim Hamilton’s World of Securities Regulation
* BD Law Blog

What's your plan to start a fund? What college and MBA program are you pursuing? Planning on working on wall st. for awhile first? That is the track for most hedge fund mgrs.

When you talk to hedge fund managers, the biggest challenge is raising money. (there is probably a great fastlane opportunity here to help hedge funds raise money) It's your background/education, trading track record and your ability to have strong communication skills and ambition to always be networking like crazy. You have to have a compelling case for someone to hand over millions of dollars to you. Good luck!

 

[DeletedUser394]

Ryan,
check out this site:

Hedge Fund Certification & Training | Certified Hedge Fund Professional (CHP) Designation

You can get your CHP online. It is not that expensive and it can be done 100% online. This is the 'certified hedge fund professional' designation.

You may also want to consider getting your CFA.

I've heard of the CHP designation, but I wasn't sure if it was widely accepted within the industry. It's worth a look though.

CFA is a definite for me.

 

[DeletedUser394]

What's your plan to start a fund? What college and MBA program are you pursuing? Planning on working on wall st. for awhile first? That is the track for most hedge fund mgrs.

When you talk to hedge fund managers, the biggest challenge is raising money. (there is probably a great fastlane opportunity here to help hedge funds raise money) It's your background/education, trading track record and your ability to have strong communication skills and ambition to always be networking like crazy. You have to have a compelling case for someone to hand over millions of dollars to you. Good luck!

I'll be entering my first year of a 4 Year BComm majoring in Finance. (I got in for free). CFA designation is a definite must.

I'll be working on Bay Street (Our equivalent of Wall Street xD )

Hoping to work as a Junior Analyst for a while.

Track record is really important, so I'll open up a fund (or even just use my brokerage account) and track every single result that I get. That way I'll have years worth of performance records before I'm ready to start my own fund.

Many top ranked hedge fund managers have 'useless' arts degrees and the like. I'd like to make myself more attractive (from an investment standpoint haha) by getting degrees and certifications that are applicable to the actual industry.

So CFA, CHP, BComm, MBA... possibly even a PhD on a part time basis.

I absolutely hate school, but I can get above average results with little effort. So if I put in a bit of effort (while trading on the side, and possibly working within the industry to get experience.

My goal is to launch my own fund with at least $2M-$10M of seed capital by age 25. I have a little less than 7 years. So it's quite accomplishable.

 

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[GlobalWealth]

Ryan,
Based on your desired outcome, you certainly need the degree. Don't underestimate what you can learn taking finance classes from intelligent teachers.

You may want to consider either a finance or economics major, or both.

A CFA will carry the most weight of any certification in the hedge fund world. You could possibly do an MBA, but save that for later.

The CFA will take you around 3 years to complete. You can enlist a finance teacher at your university to help guide you. They may even have resources for you there to help defer cost or offer CFA test prep classes. The earlier you start, the better.

The CHP can be done in one year. It doesn't carry the weight of the CFA, but it is cheaper and easier to get and looks really good for someone going to work in the finance world and/or starting a hedge fund.

I recommend tracking every single detail of your trading/investing portfolio in excel spreadsheets. The longer your trading history the better.

Most hedge fund managers come from the ranks of analyst. But that doesn't mean they must. Read Market Wizards or New Market Wizards and you will see that many of them came from very diverse backgrounds and started with next to nothing in funds.

 

[TaxGuy]

Ryan,
Based on your desired outcome, you certainly need the degree. Don't underestimate what you can learn taking finance classes from intelligent teachers.

I smell a Fastlane opportunity

You should start your own "Global Wealth University", I know snowbank started a thread on starting your own accredited university, but how awesome of a legacy would that be to have the first accredited business school taught by Fastlaners

As far as I'm concerned unless the professor has been there and done that their advice is worthless. So make sure that your profs have the business experience to back their teachings. Reminds me of the movie "Back To School" where Rodney Dangerfield's un-educated character knew more about business than the pretentious Oxford grad professor


[video=youtube;YlVDGmjz7eM]http://www.youtube.com/watch?v=YlVDGmjz7eM[/video]

 

[michael]

I'll be entering my first year of a 4 Year BComm majoring in Finance. (I got in for free). CFA designation is a definite must.

I'll be working on Bay Street (Our equivalent of Wall Street xD )

Hoping to work as a Junior Analyst for a while.

Track record is really important, so I'll open up a fund (or even just use my brokerage account) and track every single result that I get. That way I'll have years worth of performance records before I'm ready to start my own fund.

Many top ranked hedge fund managers have 'useless' arts degrees and the like. I'd like to make myself more attractive (from an investment standpoint haha) by getting degrees and certifications that are applicable to the actual industry.

So CFA, CHP, BComm, MBA... possibly even a PhD on a part time basis.

I absolutely hate school, but I can get above average results with little effort. So if I put in a bit of effort (while trading on the side, and possibly working within the industry to get experience.

My goal is to launch my own fund with at least $2M-$10M of seed capital by age 25. I have a little less than 7 years. So it's quite accomplishable.

As far as tracking your own results perhaps if you do it in a public blog and lay out your investment philosophy, thoughts, performance and what not over a couple years like this guy did (he tracked performance of a virtual portfolio and impressed people so much that he now has $12M in commitments to his fund) then you too might have the same success.

This guy has 20 years in the market so lacking that your plan to start a fund not long out of school would be served well by achieving numerous high distinction (aussie/uk term for ultra high gpa) in your subjects. In addition make sure you make the most of summer internships and get to know plenty of individuals with money to invest.

 

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