Loaning your bitcoins to an offshore business

[Elwar]

Hypothetical scenario so that nobody is giving legal advice:

Say a US citizen were to create an offshore company in the Cayman Islands or Turks & Caicos where there is no income tax nor capital gains taxes.

The individual then loans this company some bitcoins. Say an even million dollars worth. That company then sells the bitcoins and puts the dollars in a bank account.

The company then buys a car in its name, a boat in its name, and pays this US citizen a yearly salary below the 100k cutoff for expats living overseas. The owner has full use of the company vehicle, boat, etc.

Would there be any legal challenge for this individual?

This person is also not doing it for tax avoidance purposes. S/he was already planning to start a business and wanted to start one in a business friendly nation.

[BayAreaCoins]

I thought it was more like a Offshore business loans a individual funds/bitcoin in the USA because loans aren't income in the States.

Income and capital gains have nothing to do with loans.

[countryfree]

It all depends on the bilateral tax agreement between the 2 countries. Unless there's one, the person would have to pay income tax in both countries. Car and boat would be seen as benefit in kind and they would be taxed too.

[Elwar]

I thought it was more like a Offshore business loans a individual funds/bitcoin in the USA because loans aren't income in the States.

Income and capital gains have nothing to do with loans.

Wether someone loans the company the bitcoins or invests it in the company doesn't really matter. The part I am concerned about is when they sell the bitcoins for dollars.

[olushakes]

From the way I see it based on the scenario painted there, there will be tax levied on the individual in the US since he is receiving income from abroad however, in other not to serve as punishment for receiving money from abroad, there are several tax agreement and policies that guides receiving income from abroad because when this is positive it means it will increase the GDP of the country which is a plus on the part of government. The tax to be paid would however, be minimal

[countryfree]

I thought it was more like a Offshore business loans a individual funds/bitcoin in the USA because loans aren't income in the States.

Income and capital gains have nothing to do with loans.

Wether someone loans the company the bitcoins or invests it in the company doesn't really matter. The part I am concerned about is when they sell the bitcoins for dollars.

Really? It's the change of ownership which shall concern you. You create a company, providing a financial asset with your bitcoins. You get shares in return, and the company now has every right to go to an exchange and buy any fiat currency it wants. But AML regulations will be when you transfer bitcoins from your personal wallet, to a wallet in the name of the company. You'll need a lawyer and you'll tell him I'm giving that many BTC to the company I'm creating. This is where there will be questions.

[Elwar]

From the way I see it based on the scenario painted there, there will be tax levied on the individual in the US since he is receiving income from abroad however, in other to to serve as punishment for receiving money from abroad, there are several tax agreement and policies that guides receiving income from abroad because when this is positive it means it will increase the GDP of the country which is a plus on the part of government. The tax to be laid would however, be minimal.

If you live overseas you do not have to pay income taxes on the first 100k of income.

[Elwar]

I thought it was more like a Offshore business loans a individual funds/bitcoin in the USA because loans aren't income in the States.

Income and capital gains have nothing to do with loans.

Wether someone loans the company the bitcoins or invests it in the company doesn't really matter. The part I am concerned about is when they sell the bitcoins for dollars.

Really? It's the change of ownership which shall concern you. You create a company, providing a financial asset with your bitcoins. You get shares in return, and the company now has every right to go to an exchange and buy any fiat currency it wants. But AML regulations will be when you transfer bitcoins from your personal wallet, to a wallet in the name of the company. You'll need a lawyer and you'll tell him I'm giving that many BTC to the company I'm creating. This is where there will be questions.

Thank you, that is what I was wondering. Where the sticking points will be. It just seems better if it was a loan since the person moving the btc will not be getting any assets in return such as stocks and just giving does not seem like it would fly.

[countryfree]

Well, I don't like the idea of a loan because BTC's price is just too crazy. It more than doubled this year, so I can't think of any sane person who would accept a loan in BTC. That makes the idea of a loan suspicious...

[Dabs]

This looks like a chapter from an out of print book.

[infofront]

Hypothetical scenario so that nobody is giving legal advice:

Say a US citizen were to create an offshore company in the Cayman Islands or Turks & Caicos where there is no income tax nor capital gains taxes.

The individual then loans this company some bitcoins. Say an even million dollars worth. That company then sells the bitcoins and puts the dollars in a bank account.

The company then buys a car in its name, a boat in its name, and pays this US citizen a yearly salary below the 100k cutoff for expats living overseas. The owner has full use of the company vehicle, boat, etc.

Would there be any legal challenge for this individual?

This person is also not doing it for tax avoidance purposes. S/he was already planning to start a business and wanted to start one in a business friendly nation.

So, in this scenario, one would continue living in the US, collecting a $99,999 salary from a foreign corporation, and paying no taxes anywhere?

[Dabs]

What if you gamble it first

As long as the casino doesn't ask where it came from or care... however casinos are usually heavily scrutinized.

Just look for a game with 100% chance to win, there are many. Of course, you lose the house edge, usually 1% to 2% depending on the operator. Many dice games don't allow setting a 100% chance to win, so you'll have to decide if 99% chance to win is good for your bitcoins (or put another way, if 1% chance to lose is acceptable to you.)

The loan idea is better, and it's "cleaner". The idea from the chapter of the book I'm talking about (it's on the internet somewhere, for free) talks about forming two corporations. A US based corporation and the Offshore based corporation. The US corp borrows. The Offshore corp lends. The US corp never pays back the loan, but that's between the two corporations. Or they can come up with a legal thingie that implies the US corp can pay anytime when able; but they never do. Or some absure number of years, like 200 years at zero percent interest. Or negative interest.

Accountants are also good at this kind of thing.

So, in this scenario, one would continue living in the US, collecting a $99,999 salary from a foreign corporation, and paying no taxes anywhere?

I believe the idea is for the US citizen to live and collect income in the foreign country. While remaining a US citizen. If he renounces citizenship, that's another story and has its own complications.


After having had a permanent resident visa for a long time (of the US), also known as a "green card", I'm about ready to give it up or abandon it. I'll just visit. I haven't lived there in 20 years anyway.

Here are a few other countries OP may want to investigate:

Belgium
Malaysia
New Zealand
Belize
Hong Kong
Cyprus
Barbados
Isle of Man
Jamaica
Sierra Leone
Sri Lanka

All of them do not have capital gains tax. Someone please correct me if I am mistaken on any of them.

[Elwar]

Belgium
Malaysia
New Zealand
Belize
Hong Kong
Cyprus
Barbados
Isle of Man
Jamaica
Sierra Leone
Sri Lanka

No capital gains but most have income tax which the person would have to pay if they were drawing a salary from the corporation. Though in your scenario of getting a loan it would not matter. Belize would be high on that list due to their policy of somewhat decent privacy laws for their banks.

[Dabs]

I believe Steve Jobs had a $1 annual salary.. Way to avoid income taxes, on earned income. But I'm sure he paid taxes on his shares of Apple and whatnot.

*edit* it seems there are a number of them:
https://en.wikipedia.org/wiki/One-dollar_salary

*edit2* You might want to look into cash gifts. Some countries don't tax cash gifts. Especially if it was donated to you anonymously, because you held a placard with a QR code of a bitcoin address with a message "Please Donate For My Retirement!"

I think a student did that once, and asked for bitcoin donations for his college fund/books/tuition or it actually said "HI MOM SEND" and he got $26k USD or 22 bitcoins.

[Elwar]

I spoke briefly with an accountant and he mentioned that the controlled foreign corporation rules might make it difficult to go this route.

From the quick perusal of those rules it looks like any gains made by the corporation have to be paid by the US citizen as if all income were to be distributed that year as opposed to any long term deferred income.

Now, considering the bitcoins are loaned...it does not seem like that would count as a capital gain. The loan is a debit while the total cash is the equivalent credit. But if that were the case, the company would not need to be a foreign company since even a US company with no capital gains would not pay taxes.

[Dabs]

You're trying to do this as openly and as legally as possible, right? Cuz I'm sure you can talk to that same accountant and ... they only do double-entry accounting, not triple-entry. There might even be some corporations set up for people like you, ready to buy. Or ready to sell to any buyer. I'd rather do it on my own, and in fact already have several set up (but in my country; where it's "easier" to talk to the tax people.)