IB Doesn't Like Panama Anymore [Interactive Brokers]

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galeno
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IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by galeno »

We just got informed by IB that they will no longer accept accounts from Panamanian or Belizian corporations. Probably others too.

My wife and I are born and raised Costa Ricans. When we wanted to switch brokers in the early 1990s from Bank of Bermuda to Schwab Cayman we formed a Panamanian corporation to mitigate the harsh inheritance taxes on USA-NRAs. Schwab Cayman was shut down and we became clients of Schwab international.

6 years ago we discovered IB and its access to non-USA domiciled stock and bond ETFs so we moved to them. They accepted the corporate account transfer from Schwab without any problem whatsoever.

Then came "The Panama Papers". Now Panama, Belize, and other offshore locations are "radioactive". We need to change our relationship with IB if we want to continue with them. And we do. For us IB is the best broker on the planet.

On the surface this is easy. We simply bypass the Panamanian "middleman" and go direct joint account or other. Extremely easy.

The problem is that we LOVE having that middleman. It's very cheap to maintain. It does LOTS of things we've come to really like.

1. We love having non-CR debit cards. Sometimes the bid ask spread between USD and CRC is over 3%. It should be 1%. It's a sneaky tax on USD cash. Our Panamanian bank cards gives us a much better exchange rate. When we travel outside CR we pay for everything with our Panamanian bank debit cards.

2. Many people in both of our families have been "express kidnapped" and have been the victims of home invasions. We like to keep 5% of port in CASH. We know that some bank employees inform criminal gangs when someone has large cash balances. We try to keep an absolute minimum in our CR banks. Call us paranoid. We say caution is cheap.

3. With the pandemic our [political comment removed by admin LadyGeek] givernment is desperate for cash. The president of the CR central bank basically said on TV that CR has 6 months left. Then we go "back to the 1980s". The 1980s was a nightmare for Costa Ricans. Massive CRC devaluations and the freezing of all USD bank accounts. The CR govt is now talking about laws to tax the evil rich. Our "middleman" protects us against this too.

Conclusion. We REALLY LIKE having a middleman between our assets and Costa Rican criminals and government. If CR becomes what we call "mini Venezuela" my wife and I pack our 2 SUVs with our most important stuff and drive 6 hours to safety. Panama is where Central American, Colombian, and Venezuelan flee to when their countries go bad.

We've spoken to several smart financial people here in CR with the same situation and with IB and this is our conclusion. Form a corporation in the BVI (British Virgin Islands) and use it as a middleman. IB is totally cool with this. We're investigating other options. But the BVI one looks like the best one so far.

I thought I'd mention to this board because many of us who use these types of protections against our own vapid goverments are going to have to deal with these type of changes.

I welcome any and all comments.
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Re: IB Doesn't Like Panama Anymore

Post by galeno »

We also discussed having the Panamanian corp open a BVI corporatate account with IB. Not acceptable. They want nothing to do with Panamanian corporations.

We have a Zoom meeting this AM with some other CR people both of our families have known and trusted for decades.

I'll post any other possibly helpful info that comes out of this.
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552BB
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Re: IB Doesn't Like Panama Anymore

Post by 552BB »

Hello galeno,

Interesting topic. Not sure what number of Latin American foreign investors we have here on BH, so you may not get too many inputs. I, for one, am certainly interested.

I am Mexican - American, with interests in both countries. I have not been to Costa Rica, but will travel there this next year for my job.

I have a couple of quick questions if you don't mind.

For those of us that are not that familiar with the Panama Papers, can you elaborate on that a little more?

And, are you also US citizens. I ask this question to enlighten myself on property rights rules. In Mexico, there is a difference in property rights for citizens and non-citizens.

Thanks

:sharebeer
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Re: IB Doesn't Like Panama Anymore

Post by 7eight9 »

For a quick and enjoyable take on the Panama Papers an hour and a half spent watching The Laundromat is a nice introduction.

The Laundromat is a 2019 American biographical comedy-drama film directed by Steven Soderbergh with a screenplay by Scott Z. Burns. It stars Meryl Streep, Gary Oldman, Antonio Banderas, Jeffrey Wright, David Schwimmer, Matthias Schoenaerts, James Cromwell, and Sharon Stone. It is based on the Panama Papers scandal.
https://en.wikipedia.org/wiki/The_Laundromat_(film)
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Re: IB Doesn't Like Panama Anymore

Post by assyadh »

galeno wrote: Wed Sep 02, 2020 7:56 am We like to keep 5If CR becomes what we call "mini Venezuela" my wife and I pack our 2 SUVs with our most important stuff and drive 6 hours to safety. Panama is where Central American, Colombian, and Venezuelan flee to when their countries go bad.
I totally get your idea. Often times, people from South America or Eastern Europe remember totalitarian regimes and how things can go south in a matter of days. Westerner usually don't understand that.

But what I can say, is that when CR becomes mini Venezuela it would be too late already.

Do you have a second passport? What citizenships do you hold?
I would suggest you already pack your things and leave. Because often times, currency control comes with border closure.

If you don't have a second citizenship then you need one. For a couple or a family, Antigua and Barbuda citizenship by investment is a great choice at around 150k.
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by LadyGeek »

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Update: See below.
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by LadyGeek »

After further moderator review, this thread is unlocked to continue the discussion.

Please stay focused on investing.
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by whodidntante »

What is your actual question? There are no question marks in either of your posts so far.
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by drk »

Since you mentioned having a corporation, I wonder if Estonian e-residency could be a fit. One of its benefits is that it opens up EU-based business banking. Hypothetically, you could set up your investment accounts that way.
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by cheerfulcharlie »

galeno wrote: Wed Sep 02, 2020 7:56 am 1. We love having non-CR debit cards. Sometimes the bid ask spread between USD and CRC is over 3%. It should be 1%. It's a sneaky tax on USD cash. Our Panamanian bank cards gives us a much better exchange rate. When we travel outside CR we pay for everything with our Panamanian bank debit cards.
Can you tell us more about this? What steps are involved to get a Panamanian bank debit card? Is this available to US residents?
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by TedSwippet »

whodidntante wrote: Wed Sep 02, 2020 7:26 pm What is your actual question? There are no question marks in either of your posts so far.
I would call this a "public service announcement". There is no requirement for a post to be a question, only that it be civil and respectful, investment-related, non-political, without solicitation, and actionable. The topic author's posts above meet all of these.
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Re: IB Doesn't Like Panama Anymore

Post by 552BB »

Hello again,


552BB wrote: Wed Sep 02, 2020 9:50 am Hello galeno,

Interesting topic. Not sure what number of Latin American foreign investors we have here on BH, so you may not get too many inputs. I, for one, am certainly interested.

I am Mexican - American, with interests in both countries. I have not been to Costa Rica, but will travel there this next year for my job.

I have a couple of quick questions if you don't mind.

For those of us that are not that familiar with the Panama Papers, can you elaborate on that a little more?

And, are you also US citizens. I ask this question to enlighten myself on property rights rules. In Mexico, there is a difference in property rights for citizens and non-citizens.

Thanks

:sharebeer
I am bumping this because it looks like it was blocked and then unblocked.

I am hoping to engage the author or anyone else to my inquiry

I am interested in your statement about the Panama Papers, how it relates to your concern about Costa Rica. Are you talking about this as a figure of speech or do you see real problems arising in your neck of the woods?

Would being US citizens help as far as investing in the US markets or real property in Costa Rica?



Thanks

:sharebeer
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by LFS1234 »

Thanks Galeno for your very interesting post. This is news that I probably would not have seen elsewhere.

The issues that are affecting you today could affect myself or others tomorrow. Although I don't have any contacts with the countries you mentioned, I do business in several other countries and have been considering opening an account with IB.

All best wishes to you.
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by galeno »

I'm back. I thought this thread got closed. thanks ladygeek.

We are NOT USA citizens or residents. We are Costa Rican citizens and residents.

But our money is Panamanian. Soon it will be BVI.

This a non-USA investors board. I have no idea what the USA allows or doesn't to its citizens or residents. We want access to Ireland Vanguard and Ireland Ishares UCITS funds / ETFs.
Last edited by galeno on Thu Sep 03, 2020 3:49 pm, edited 1 time in total.
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by galeno »

We're going ahead with the BVI passthrough corp. It's going to cost money. We're not happy. We've had that Panamanian company for over 25 years. But we want to stay with IB. Oh well.

The Panama Papers have nothing to do with us other than IB does not want to deal with Panamanian passthrough corps or even Panamanian banks.

I spoke to IBKR this AM. Then I called Schwab International. Schwab has NO problem with Panamanian corporate accounts.

BUT....we can't hold the UCITS funds we like with Schwab.
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by galeno »

We prefer to avoid the EU and the USA. We like Panama. We will learn to love our BVI company.

We are taking a look at the benefits of a Nevada or Delaware corp.
drk wrote: Wed Sep 02, 2020 7:30 pm Since you mentioned having a corporation, I wonder if Estonian e-residency could be a fit. One of its benefits is that it opens up EU-based business banking. Hypothetically, you could set up your investment accounts that way.
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by Maple »

galeno wrote: Thu Sep 03, 2020 3:44 pm We're going ahead with the BVI passthrough corp. It's going to cost money. We're not happy. We've had that Panamanian company for over 25 years. But we want to stay with IB. Oh well.

The Panama Papers have nothing to do with us other than IB does not want to deal with Panamanian passthrough corps or even Panamanian banks.

I spoke to IBKR this AM. Then I called Schwab International. Schwab has NO problem with Panamanian corporate accounts.

BUT....we can't hold the UCITS funds we like with Schwab.
Out of curiosity, how would your Panamanian company be treated with regard to US estate taxes; does it provide relief? From prior threads, many NRA Bogleheads have expressed estate tax concerns as a major reason to avoid investing via USA domiciled accounts.

Other than estate taxes, investing the equity portion of your portfolio in USA domiciled Equity ETFs with Schwab would provide many benefits.

1) Generally lower ETF management expense ratios.
2) Generally lower bid/offer spreads.
3) Generally lower commissions.
4) 0% L1WT on USA equities held by your USA domiciled ETFs.
5) 0% L2WT on ETFs if you sell day before x-div and purchase an equivalent ETF without a pending dividend. (need L3 cap gains taxes to be 0% for this to be viable)
6) Schwab offers an ATM card with friction-less withdrawals. (forex at spot and all ATM fees rebated)
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by Blueskies123 »

Here is a quick summary of what the papers were about:

https://www.investopedia.com/terms/p/panama-papers.asp
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by galeno »

I had a long conversation with our attorney in Panama. He and I are good friends with Panama's current finance minister's father.

We're both unhappy with IBKR's position. Let's see if we can get the Panamanian AND CR governments to get officially involved. Maybe even Central America.

The guy at IBKR told me IBKR will not accept corporate accounts from ANY Central American country. Why? Too much compliance work. That's what he told me.

Blueskies123 wrote: Fri Sep 04, 2020 5:06 am Here is a quick summary of what the papers were about:

https://www.investopedia.com/terms/p/panama-papers.asp
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by galeno »

Costa Ricans put everything into corporations. We have 4 CR corps and 1 Panamanian corp. Our properties and cars are all in CR corps. Financial assets in the Panamanian corp.

When we decided to switch from the brokerage division of The Bank of Bermuda to Charles Schwab in the early 1990s we NEEDED a corporation to protect against the inheritance laws of the USA.

When we discovered IBKR and gained access to NON-USA domiciled financial assets the first thing my wife and I wanted to do was eliminate the Panamanian corp and go directly. Bogleheads like to cut portfolio costs. Both of our attorneys in CR and Panama (both old family friends) told us not to be penny wise and dollar foolish. We kept the corp.

Corporations have shareholders. Our corps have our children as shareholders. Up until the early 2000s CR and Panama allowed bearer shares. No more.



"Out of curiosity, how would your Panamanian company be treated with regard to US estate taxes; does it provide relief? From prior threads, many NRA Bogleheads have expressed estate tax concerns as a major reason to avoid investing via USA domiciled accounts."
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by galeno »

Because of FATCA a US person that is NOT a legal resident cannot directly open a simple bank account in CR or Panama.

Americans can get CR or Panamanian corporate bank accounts. But you must first open or buy a corporation then and maintain it. Yearly costs and penalties if you are late.

From what I understand almost NO country in the world wants to deal with Americans because of FATCA compliance requirements.

Our Panamanian lawyer jokingly says IBKR (a US based company) is doing "reverse FATCA" on us.

"Can you tell us more about this? What steps are involved to get a Panamanian bank debit card? Is this available to US residents?"
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by Rosales »

Why did you have to keep the corp after moving to IBKR and UCITS ETFs? Don't you avoid US estate tax by holding Irish funds, even with US broker?
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by galeno »

Read the OP and my other posts on this thread. With IBKR and UCITS we did not neet a corp speed bump. We wanted to keep it.

We still want a corp between our financial assets and us. That's why we're about to pay big bucks (for a Boglehead) to either form or buy a BVI corporation.
Rosales wrote: Fri Sep 04, 2020 11:43 am Why did you have to keep the corp after moving to IBKR and UCITS ETFs? Don't you avoid US estate tax by holding Irish funds, even with US broker?
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by nestorius »

galeno wrote: Fri Sep 04, 2020 8:06 am ...

The guy at IBKR told me IBKR will not accept corporate accounts from ANY Central American country. Why? Too much compliance work. That's what he told me.

...
Perhaps the link below may help clarify some of what's going on in the background and IBKR's decision. The European Union has adopted anti-laundering/tax transparency laws and is applying its considerable economic force on countries it sees as tax havens or with loose financial controls. This has produced a mad scramble by Caribbean nations to enact appropriate controls if they want to conduct unfettered trade with the EU. I am simplifying a complex series of political and financial issues but it may explain IBKR's reaction:

https://en.wikipedia.org/wiki/European_ ... _blacklist

You may want to talk to your lawyer about the EU's Black List and the OECD's Base Erosion Profit Shifting (BEPS) initiatives. If Panama has plans to comply, then perhaps IBKR's policy may change.

On a separate thought: if you proceed with the BVI company, you could transfer ownership of the Panama company to it in exchange for your kids receiving BVI shares. That way you could keep the Panamanian bank account, etc., but use the BVI entity for business with IBKR and funding the Panama subsidiary. Just a thought. However, it behooves you to understand what BVI's position is (and plans to be) vis-a-vis the EU and BEPS.
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by galeno »

This explains a lot. The reason we use IBKR is because we prefer holding UCITS ETFs which we bought on the LSE.

IBKR has many more non-USA customers. That explains why IBKR is more sensitive to these European changes vs Schwab and Fidelity not really caring.

Our CR financial advisor is having the same problem. He too needs to change his money's clothes from Panama to BVI. We're following his lead.

We definately will keep our Panamanian corp and bank accounts. It's inexpensive to maintain. Our BVI company will own the Panamanian corp shares. I like your last idea.

But the Pana corp may be worth a lot of money because it's over 25 years OLD. If so we'll sell it. Probably to a rich [(removed) --admin LadyGeek], Russian, or Arab trying to get his money out. Our Panamanian lawyer pointed this out to us.

Panama will definately try to comply. They will bend over backwards if they can. I know my small share of OLD Panamanian elites. They are already on it. If I know one of my friends well, which I do, IBRK will get an official call from the Panamanian govt next week. Global finance is what Americans would call Panama's bread and butter.


nestorius wrote: Fri Sep 04, 2020 7:56 pm
galeno wrote: Fri Sep 04, 2020 8:06 am ...

The guy at IBKR told me IBKR will not accept corporate accounts from ANY Central American country. Why? Too much compliance work. That's what he told me.

...
Perhaps the link below may help clarify some of what's going on in the background and IBKR's decision. The European Union has adopted anti-laundering/tax transparency laws and is applying its considerable economic force on countries it sees as tax havens or with loose financial controls. This has produced a mad scramble by Caribbean nations to enact appropriate controls if they want to conduct unfettered trade with the EU. I am simplifying a complex series of political and financial issues but it may explain IBKR's reaction:

https://en.wikipedia.org/wiki/European_ ... _blacklist

You may want to talk to your lawyer about the EU's Black List and the OECD's Base Erosion Profit Shifting (BEPS) initiatives. If Panama has plans to comply, then perhaps IBKR's policy may change.

On a separate thought: if you proceed with the BVI company, you could transfer ownership of the Panama company to it in exchange for your kids receiving BVI shares. That way you could keep the Panamanian bank account, etc., but use the BVI entity for business with IBKR and funding the Panama subsidiary. Just a thought. However, it behooves you to understand what BVI's position is (and plans to be) vis-a-vis the EU and BEPS.
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by shcnno »

Does IB accept BVI?
If so, why do you need to keep the Panama Corp, why not transfer everything to the BVI Corp?
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by galeno »

Yes. IBKR accepts corporate accounts from the BVI. We've aleady decided to make the transfer. I guess we're going to visit BVI instead pf Panama. Fly instead of drive.

We know Panama. We trust Panama. Next door Panama is out safe haven if Costa Rica goes bad.

We will apply for Panamanian residency / citizenship as soon we start drawing our CR pensions. We think / hope Panama can / will straighten out its dificulties with IBKR.
shcnno wrote: Sat Sep 05, 2020 4:01 pm Does IB accept BVI?
If so, why do you need to keep the Panama Corp, why not transfer everything to the BVI Corp?
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by assyadh »

galeno wrote: Sat Sep 05, 2020 6:39 pm Yes. IBKR accepts corporate accounts from the BVI. We've aleady decided to make the transfer. I guess we're going to visit BVI instead pf Panama. Fly instead of drive.

We know Panama. We trust Panama. Next door Panama is out safe haven if Costa Rica goes bad.

We will apply for Panamanian residency / citizenship as soon we start drawing our CR pensions. We think / hope Panama can / will straighten out its dificulties with IBKR.
shcnno wrote: Sat Sep 05, 2020 4:01 pm Does IB accept BVI?
If so, why do you need to keep the Panama Corp, why not transfer everything to the BVI Corp?
Panama residency is doable with the friendly nations visa or other schemes. Citizenship is rarely happening. The rules are there, but lots of feedback of people blocked from actually getting it.
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by galeno »

I know 3 countries VERY well. My own and my neighbors. In these countries families and friends still matter. A lot.

Unlike many of my fellow countymen I love and appreciate our immediate neighbor countries. My country is still "the best" but that could change. All 3 are HOME for me. Wife is more "CRcentric".

I'm pretty ignorant about the rest of the American continent and the rest of the world. We don't really know anybody and RARELY travel outside our 3 country area.

This is our biggest problem with the BVI corporate account idea with IBKR. We know ZERO about BVI and know NOBODY there.

assyadh wrote: Sat Sep 05, 2020 8:57 pm Panama residency is doable with the friendly nations visa or other schemes. Citizenship is rarely happening. The rules are there, but lots of feedback of people blocked from actually getting it.
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by galeno »

This is not correct. I just found out that one of our national (not private) banks "Banco de Costa Rica" will open a regular simple bank account for a US person without legal residency or a costly Costa Rican corporate middleman.

Apparently the other CR banks do NOT want to deal with the USA FATCA compliance regulations.

I also found out that Panama and Nicaragua will allow CR persons to open simple regular bank accounts as long as we use a local address. We have family in both countries so we really may not WANT our Panamanian corp after all.
galeno wrote: Fri Sep 04, 2020 8:47 am Because of FATCA a US person that is NOT a legal resident cannot directly open a simple bank account in CR or Panama.

Americans can get CR or Panamanian corporate bank accounts. But you must first open or buy a corporation then and maintain it. Yearly costs and penalties if you are late.

From what I understand almost NO country in the world wants to deal with Americans because of FATCA compliance requirements.

Our Panamanian lawyer jokingly says IBKR (a US based company) is doing "reverse FATCA" on us.

"Can you tell us more about this? What steps are involved to get a Panamanian bank debit card? Is this available to US residents?"
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by hushroom »

Mostly out of curiosity, approximately how much does such a structure cost to set up and maintain? Panama, BVI, or any other "tax haven" if anyone has experience...

Apart from the costs, is there any additional friction to use such a setup?

How does it actually work when you want to deposit or withdraw funds, is there tons of paperwork or is it simply a matter of one additional bank transfer in between you and the broker?
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by galeno »

We are about to find out the cost of setting up a BVI pass through corporation with 3 different corporate bank accounts. I have a bad feeling it's going to cost more than we want.

Our CR and Panamanian corps were set up and maintained by attorneys who are OLD family friends. We get good deals. We are CLUELESS about the BVI. Also friendless.

Our Panamanian corp cost $3000 to set up in 1992. Annual cost $1000. $900 annual is for the 3 directors that must be Panamanian citizens.

Our CR corps are a lot cheaper. Annual cost about $100. My wife and I are the CR citizen officers. Wife, oldest daughter and I are the CR citizen directors.

Once a year we rebalance our port to hold 5% of port in USD cash. That cash is wire transfered to our Panamanian corporate account. 20% cash 20% in 3mo CD, 20% in 6 mo CD, 20% 9mo CD and 20% in 12 mo CD.

Once a month we wire transfer 0.33% of that 5% of port cash to our CR bank accounts. We've been doing this for over 25 years.

We also keep 1 month of living expenses in USD cash ($1 and $5 bills) hidden in the house. Invaluable when we go to Nicaragua and Cuba. They NEVER have change.
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by Tylenol Jones »

Why not a US pass-though entity if you're willing to pay for a corporation? US is effectively offshore for you and you'd get access to cheaper US ETFs without worry about US estate taxes? I'd guess US companies are much cheaper to form and maintain.
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galeno
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Re: IB Doesn't Like Panama Anymore [Interactive Brokers]

Post by galeno »

I brought this up with our team (2 lawyers, cpa, and financial advisor). I asked why don't we create or buy a corp from nevada or delaware? That way we could use USA domicled ETFs. Just like the Americans.

The answer best answer came from our Panamanian lawyer. He said "Thousands of Americans, men from China, and Russians call Panamanian lawyers every day trying to get their money out. Why do you want your money in?"

Also none of us knows how to deal with US laws and regs. US taxes intimidate us.

Believe it or not I'm the "expert on the USA and on all things stocks and bonds" of the group. And I don't know anything!
Tylenol Jones wrote: Wed Sep 09, 2020 5:20 am Why not a US pass-though entity if you're willing to pay for a corporation? US is effectively offshore for you and you'd get access to cheaper US ETFs without worry about US estate taxes? I'd guess US companies are much cheaper to form and maintain.
KISS & STC.
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