The use of offshore havens for asset protection is on the steep decline among U.S. citizens.
There are many plausible reasons for this, including that over a dozen states have adopted Domestic Asset Protection Trust legislation that is at least as good as those offered by the offshore domiciles, and cutting-edge LLC legislation that is well ahead of its offshore equivalents.
But the main reason is that over the years the offshore sector has done an excellent job of shooting itself in the foot at least as far as Americans are concerned.
No, I'm not talking about the offshore havens catering to Marc Harris, Jerome Schneider, Terry Neal and their ilk. Their actions were ultimately not that much different than such on-shore asset protection scammers such as William Reed and Troy Titus.
What I'm talking about is the offshore havens so aggressively and brazenly assisting U.S. citizens with evading taxes; not saving taxes by offering lower rates that probably would have avoided the worst scrutiny, so called "avoison", but by helping U.S. citizens to taxes altogether.
It was inevitable that there would be a U.S. backlash, and thus the U.S. has passed a number of new reporting requirements with onerous penalties for non-compliance, such that the average citizen now says, "It's just not worth it to go offshore."
Indeed, these days I hear a lot of, "I need asset protection, but I don't want any of that offshore stuff". In their mind, it is just not worth running the risks of big fines in the event of some technical violation of the reporting laws, even if made with the best intentions.
Even if the client wants to engage in offshore asset protection, their other advisors will almost always weigh in against the idea - particularly their accountant. Again, just not worth it.
If the offshore havens want to start attracting business again in significant numbers, they will need to change their entire mindset about how offshore should operate, at least as to U.S. citizens. The new approach should be to offer lower tax rates than the U.S., but no so low that a particular jurisdiction stays on the blacklist of the 35 or so jurisdictions that are "known tax havens".
Similarly, tax treaties with the U.S. are probably inevitable if the offshore havens desire to continue attracting U.S. business.
This will be a big change, but considering the numerous offshore domiciles and their fighting over the same dollars, it will be a necessary change. Those jurisdictions that convert first are much more likely to establish themselves and get the lion's share of the business even after the rest of the domiciles come around.
One thing that the offshore domiciles have been good at is flexibility, and now is the time for perhaps their biggest test for change.
