I'm not a lawyer so this should not be construed as legal advice.



1. The reason why hedge funds often have an offshore element is to get around UBIT for your U.S. tax-exempt and non-U.S. investors, while commingling their assets with those of U.S. taxable investors. The emphasis is on the bolded part. If you are a standalone U.S. tax-exempt investor or standalone U.S. taxable investor, you have virtually no benefit in setting up a complex keiretsu because your U.S. tax liability is probably already at a minimum.



2. Entity in zero tax offshore jurisidiction =/= zero U.S. tax liability
Especially with new FATCA withholding rules, if you have an offshore entity having a trade or business in the U.S. or have U.S.-source income, you would likely find yourself subject to significant U.S. withholding tax, unless reduced by treaty, and U.S. tax reporting requirements anyway. In fact you're probably doing yourself a disfavor by starting out from HK given that the U.S. tax treaty with China explicitly excludes Macau and HK.



3. Why Nevis, Cook Islands, Belize or Uruguay?
Cayman Islands, British Virgin Islands and Bermuda are the most common domiciles for funds.

This part from the slides that you've posted is especially important and I would reiterate: "The popular offshore jurisdictions have robust anti-money laundering regimes and cooperate with international regulatory authorities". Your counterparties and service providers (e.g. Interactive Brokers, lawyers etc.) will almost certainly have their KYC/AML compliance requirements and you're probably better off with a jurisdiction that your accounting/legal/brokerage firms are familiar with.

4. Offshore entity =/= offshore banking
Most of the offshore funds that you're thinking of actually have their bank accounts in the largest financial hubs - in tax-heavy jurisdictions, especially London. There's no need to set up a bank account in a zero tax country, because you can (and probably will) have zero business, trade or income deriving from the tax-heavy country where your bank account is set up.



5. Cost-benefit analysis
I concur with PB's view as quoted above. Offshore entities are generally costly to set up. Registered agents in these jurisdictions are only interested in courting the business of customers who will incorporate more than 1-2 entities and the sweet spot for pricing their services is generally $300-$1,500/year. Authorities in these jurisdictions make a significant portion of their income from this and have the demand to price the annual fees at another $300-$3,000/year. Lawyers or CPAs who are familiar with these tax strategies often starting billing from $500/h. I generally find the the legal fees dominate all of the above - a good law firm that will set up the boilerplate LLC agreements etc. will probably charge you in excess of $10,000 for 1-2 entities. I'm sure you can find cheap services online that claim to do this for much less, but given that you're going up against the IRS, it's likely not worth saving that money.




Edit -> It seems that these 2 are your main concerns, which can be solved very easily without incorporating a single offshore company:

(1) Get insured. Pays for your lawsuits.

(2) Once you renounce your U.S. citizenship, you simply supply a Form W-8BEN to certify tax status - then you are not subject to U.S. capital gains tax, and you pay whatever personal tax on capital gains in your country of origin (presumably Ecuador and presumably zero in that case).

My suggestion certainly doesn't sound as sexy as your original plan, but I'll wager you that any CPA worth his salt will probably reach a similar conclusion.

I'm not a lawyer so this should not be construed as legal advice.



1. The reason why hedge funds often have an offshore element is to get around UBIT for your U.S. tax-exempt and non-U.S. investors, while commingling their assets with those of U.S. taxable investors. The emphasis is on the bolded part. If you are a standalone U.S. tax-exempt investor or standalone U.S. taxable investor, you have virtually no benefit in setting up a complex keiretsu because your U.S. tax liability is probably already at a minimum.



2. Entity in zero tax offshore jurisidiction =/= zero U.S. tax liability
Especially with new FATCA withholding rules, if you have an offshore entity having a trade or business in the U.S. or have U.S.-source income, you would likely find yourself subject to significant U.S. withholding tax, unless reduced by treaty, and U.S. tax reporting requirements anyway. In fact you're probably doing yourself a disfavor by starting out from HK given that the U.S. tax treaty with China explicitly excludes Macau and HK.



3. Why Nevis, Cook Islands, Belize or Uruguay?
Cayman Islands, British Virgin Islands and Bermuda are the most common domiciles for funds.

This part from the slides that you've posted is especially important and I would reiterate: "The popular offshore jurisdictions have robust anti-money laundering regimes and cooperate with international regulatory authorities". Your counterparties and service providers (e.g. Interactive Brokers, lawyers etc.) will almost certainly have their KYC/AML compliance requirements and you're probably better off with a jurisdiction that your accounting/legal/brokerage firms are familiar with.

4. Offshore entity =/= offshore banking
Most of the offshore funds that you're thinking of actually have their bank accounts in the largest financial hubs - in tax-heavy jurisdictions, especially London. There's no need to set up a bank account in a zero tax country, because you can (and probably will) have zero business, trade or income deriving from the tax-heavy country where your bank account is set up.



5. Cost-benefit analysis
I concur with PB's view as quoted above. Offshore entities are generally costly to set up. Registered agents in these jurisdictions are only interested in courting the business of customers who will incorporate more than 1-2 entities and the sweet spot for pricing their services is generally $300-$1,500/year. Authorities in these jurisdictions make a significant portion of their income from this and have the demand to price the annual fees at another $300-$3,000/year. Lawyers or CPAs who are familiar with these tax strategies often starting billing from $500/h. I generally find the the legal fees dominate all of the above - a good law firm that will set up the boilerplate LLC agreements etc. will probably charge you in excess of $10,000 for 1-2 entities. I'm sure you can find cheap services online that claim to do this for much less, but given that you're going up against the IRS, it's likely not worth saving that money.




Edit -> It seems that these 2 are your main concerns, which can be solved very easily without incorporating a single offshore company:

(1) Get insured. Pays for your lawsuits.

(2) Once you renounce your U.S. citizenship, you simply supply a Form W-8BEN to certify tax status - then you are not subject to U.S. capital gains tax, and you pay whatever personal tax on capital gains in your country of origin (presumably Ecuador and presumably zero in that case).

My suggestion certainly doesn't sound as sexy as your original plan, but I'll wager you that any CPA worth his salt will probably reach a similar conclusion.

What are some examples of lawsuits you could avoid? That whole AMP nonsense?

Let's say for example you have an internet based business with no physical presence outside of a datacenter of your choosing. If that business were to be incorporated outside of the US, then it would seem to me it is not a US business but a foreign business. Then that business would not be subject to US taxes. Now, members of that business that may be US citizens would of course be subject to US taxes on their income.

As for the reporting, while I certainly don't like the invasive nature of FBAR/FATCA, the goal is not evasion but avoidance. I don't believe "secrecy" is the key here and is not my goal. That said, if there is a legal opportunity to skip FBAR/FATCA reporting, then why not take it?

I have explored the insurance option. It is not a cost effective option for my situation. It is better for me to create my own insurance.

OK so I think I have a better understanding of what you're up to now: you are dealing with the issue of (a) the business entity for futures.io (formerly BMT) as well as (b) the business entity for your trading activities. Note that these two are (and should be treated as) different issues.

(a) Regarding your internet business (futures.io (formerly BMT)), I agree with your analysis. It seems to me that you don't really need an "offshore company" in the sense of directing income with U.S.-source tax character through a non-U.S. entity. Rather, you need a regular company in the same way a HK citizen might start a HK company. Provided you've renounced your U.S. citizenship and continue to maintain futures.io (formerly BMT) from Ecuador, U.S. withholding tax is probably not a problem. Since you won't have any U.S.-source income, I don't see a pressing need to maintain an offshore keiretsu with expensive agreements. You should simply incorporate a regular company with limited liability for its owner in the city most convenient for you or where you will be spending most of your time, i.e. probably Ecuador. You should also be able to maintain a U.S. bank account for that Ecuador entity without incurring U.S.-source income character or significant U.S. reporting requirements.

(b) As for your trading, you can probably do it personally and supply a Form W-8BEN as described in my previous post.

In either case, this is a cheap problem to solve and shouldn't require you paying $13-14k in year 1.



I have nothing against this. As I've mentioned elsewhere on this forum, anyone is free to arrange his affairs that his taxes shall be as low as possible; there is no patriotic or statutory duty for you to choose the pattern that will pay most to the IRS. I would call this "tax planning" or "minimization" rather than "avoidance" though.



I trust you've made a thorough analysis but I'm curious - why is that? General liability insurance coverage would probably cost you less than $60 per month and cover you up to $5M in legal liability. Seems way less than $2-4k per year to me. If you need more than $5M or your own custom insurance terms, you can usually communicate your needs to the insurance underwriter or approach an insurance broker, e.g. Marsh, Aon. Is there something similar in Ecuador? If not, then your problem reduces the one of finding a jurisdiction outside of the U.S. with the most navigable legal and insurance system, which would probably be somewhere in Europe rather than in the Caribbean.

The legal risks are probably significant at my firm (a $25k bond will certainly not deter anyone likely to litigate us) and nevertheless we take care of it with insurance.

Again, I'm not a licensed accountant or lawyer, so do consult such persons on these points.