The United States is now the new Switzerland
The recent trending article by Bloomberg, The World’s New Tax Haven is the United States, has the financial offshore community’s full attention. The Nevada LLC has been the choice entity for foreign investors for quite some time due to zero state tax exposure and minimal federal liabilities. So why the sudden urgency for foreign trusts to uproot their assets from places like Switzerland, Bermuda, Caymans, BVI, and Channel Islands to South Dakota and Wyoming? The answer is simple; the former tax havens no longer can keep their investments completely private.
Switzerland’s reputation as a tax haven has been tarnished since the infamous 2009 UBS scandal. Since then the US Department of Justice (DOJ) has held a large microscope of scrutiny over Switzerland. The DOJ seized records of over 75 Swiss banks, and in 2013 implemented a Swiss Bank Program where they imposed penalties in excess of $1 Billion. The US has cracked down on Switzerland for hiding US assets, and imposed strict reporting requirements under the 2010 FATCA regime.
Jumping on the FATCA band wagon, the OECD drew up its own European version of the reporting standard. To date over 100 jurisdictions, all wealth nations except for the United States, have agreed to the new international OECD reporting standards. January 1st was the deadline for the new disclosure requirement and some of the biggest foreign trust companies moved several of their accounts across the Atlantic in December just in time to avoid their reporting requirement. Switzerland was overwhelmed with closures of accounts in December, all going straight into South Dakota. It comes as no surprise that the Swiss community found America’s public advertisement of confidentiality for foreign funds as pure irony and perversion.
South Dakota may not be a state to write home about, but it is now on the global finance map, deemed the ‘tax haven on the prairie’ for the following reasons:
- No perpetuity restrictions – Owners have nonrestrictive control to the future dispositions of property
- Its Trust legislation contains self-settled asset protection and spends minimal provisions.
- The Trust legislation simplifies setup of trusts and allows families to establish their own trust companies and have full control of their investment decisions (no trustee required).
- South Dakota regularly updates its legislation to continue to attract new trust business.
- It provides trusts with extensive privacy protection with sealing arrangements.
- Finally, it imposes low or no tax related to trust assets. State imposes 0% tax on individual, corporate, and capital gains income.
For the ultra-rich families across the world, privacy is their number one priority, a zero tax location is the icing on the cake. The choice is obvious that for now the move to the US is safe and smart. The US provides privacy that no other international offshore jurisdiction can promise. The U.S. failure to sign into the OECD information-sharing standard is, as Ray Grenier, CEO of Bolton Global Capital said in an interview with Bloomberg, “…providing to be a stronger driver of growth for our business…was the beginning of the exodus.”
If you are considering setting up a US trust or have other concerns regarding US tax contact one of our specialist to ensure it is advantageous for your assets.