          
          
          
          
                             THE BEST PART -- 
                 MOST INTERNATIONAL BUSINESS IS TAX FREE!
          
          The Use of Tax Havens
          
               Tax havens are one of the most important subjects
          for an international entrepreneur, yet few understand
          and use them properly.  One group discount them as
          hiding holes for dirty money, which is not a legitimate
          use for tax havens.  Others think they are only for
          banking money after you have made it.  Not true either. 
          Money grows much faster if a tax haven is part of your
          business planning, and almost any international
          business has an opportunity to use tax havens.  It is
          the purely domestic business, confined to one country,
          that cannot benefit from the international fiscal
          loopholes.
               Simply stated, a tax haven is any country whose
          laws,  regulations, traditions, and, in some cases,
          treaty arrangements make it possible for one to reduce
          his overall tax burden.  This general definition,
          however, covers many types of tax havens, and it is
          important that you understand their differences. 
          
          No-Tax Havens.  These are countries that have no
          income, capital gains, or wealth (capital) taxes, and
          in which you can incorporate and/or form a trust.  The
          governments of these countries do earn some revenue
          from corporations; "no-tax" means that what you pay is
          independent of income derived through a company.  These
          states may impose small fees on documents of
          incorporation, a small charge on the value of corporate
          shares, annual registration fees, etc.  Primary
          examples are Bermuda, Bahamas, and the Cayman Islands.
          
          No-Tax-on-Foreign-Income Havens.  These countries do
          impose income taxes, both on individuals and
          corporations, but only on locally derived income.  They
          exempt from tax any income earned from foreign sources
          that involve no local business activities apart from
          simple "housekeeping" matters.  For example, in such a
          haven there is often no tax on income derived from
          export of local manufactured goods. 
               The no-tax-on-foreign-income havens break down
          into two  groups.  There are those that allow a
          corporation to do business both internally and
          externally, taxing only the income coming from internal
          sources, and those that require a company to decide at
          the time of incorporation whether it will be one
          allowed to do local business, with the consequent tax
          liabilities, or one permitted to do only  foreign
          business and thus be exempt from taxation.  Primary
          examples in these two sub-categories are Panama,
          Liberia, Jersey, Guernsey, Isle of Man and Gibraltar.
          
          Low-Tax Havens.  These are countries that impose some
          taxes on all corporate income, wherever earned. 
          However, most have double-taxation agreements many the
          high-tax countries that may reduce the withholding tax
          imposed on income derived from the high-tax countries
          by local corporations.  Cyprus is a primary example. 
          The British Virgin Islands is another, but no longer
          has a tax treaty with the U.S.
          
          Special Tax Havens.  These are countries that impose
          all or most of the usual taxes, but either allow
          special concessions to special types of companies (such
          as a total exemption from tax on shipping companies, or
          movie production companies) or allow very special types
          of corporate organization, such as the very flexible
          corporate arrangements offered by Liechtenstein.  The
          Netherlands and Austria are particularly good examples
          of this.
          
               To understand the precise role of tax havens, it
          is important for you to distinguish two basic sorts of
          income:  (1) return on labor and (2) return on capital. 
          The first kind of return is what you get from your
          work:  salary, wages, fees for professional services,
          and the like.  The second kind of return relates,
          basically, to the return from your investments:
          dividends on shares of stock; interest on bank
          deposits, loans and bonds; rental income; royalties on
          patents. It is the second kind of income, income from
          an investment portfolio, that tax havens are useful
          for.  Forming a corporation or trust in a tax haven can
          make the second form of income totally tax free, or
          taxed so low that you will hardly notice. 
               Certain types of businesses can be effectively
          based in a tax haven.  If you publish a newsletter, for
          example, you might be able to set up the entire
          operation in a totally tax free country such as the
          Bahamas or the Cayman Islands.  If your income comes
          from copyright royalties, perhaps on the computer
          program you invented, the Netherlands is famed as a
          base for sheltering royalty income.
               Tax havens are a very complex subject, but the
          hours you spend studying their use will probably pay
          you more per hour than the hours you spend directly
          earning an income -- an unfortunate commentary on the
          confiscatory taxation policies of most governments.  
               For the best detailed information on tax havens,
          read The Tax Haven Report published by Scope
          International Ltd., Forestside House, Forestside,
          Rowlands Castle, Hants. PO9 6EE, Great Britain, who
          will send you a free catalog. 
               Another source of information is Eden Press, which
          publishes a series of special reports on different
          havens and techniques by which Americans can use them. 
          You can obtain their catalog free by writing to them at
          P. O. Box 8410, Fountain Valley CA 92728.
               If you want to gain a good understanding of how
          the government views tax havens, University Microfilms
          International, through its Books On Demand program, is
          now making available Tax Havens and Their Uses by
          United States Taxpayers by Richard Gordon.  Frequently
          referred to as "The Gordon Report," this was a 1981
          U.S. Treasury Department study prepared at the request
          of Congress.  It gives considerable detail and examples
          of the uses of tax havens.  It is available from
          University Microfilms for $67.30 softbound, or $73.30
          hardbound.  Out of print for over a decade, anyone
          interested in tax havens who has not studied the work
          will find much still useful information in it.  Copies
          can be ordered through booksellers, or directly from
          University Microfilms International, 300 North Zeeb
          Road, Ann Arbor, Michigan 48106-1346; telephone 800-
          521-0600 or 313-761-4700.  The UMI catalog number of
          the book is AU00435, and UMI accepts Visa or
          MasterCard.
               In addition to the business use of tax havens,
          living in a tax haven can have obvious advantages. 
          Moving to Bermuda or the Bahamas is outrageously
          expensive.  But some of the countries we mentioned in
          the real estate chapter are valuable tax havens,
          without being notorious or obvious.  This is because
          the general principle of taxation in most Latin
          American countries is to tax only resident sources of
          income.  
               So you can make your home in those countries,
          receive your income from elsewhere (such as your tax
          haven business corporation), and pay no personal income
          taxes.  Venezuela recently changed its law to provide
          for worldwide taxation of residents, but this is not
          likely to be the start of a trend.  Guatemala, Uruguay,
          Costa Rica, Ecuador, Chile, and Mexico all have
          personal tax haven possibilities in addition to being
          nice, and inexpensive, places to live.   
               Just stop and think for a moment how much faster
          your money can grow if you are not paying out an
          average of 40% to a taxing government somewhere.
          
          United States as a tax haven?
               Incredible as it may seem, the United States is a
          tax haven for many foreign investors.  There is no
          withholding tax on interest paid by banks (including on
          bank money market accounts).  There is no withholding
          tax on most corporate bonds (but check carefully, as
          some older bonds are still subject to tax.  
               There is a withholding tax of 30% on dividends, so
          investing in a money-market fund is not feasible, as
          their payments are technically classified as a dividend
          rather than interest.  For the same reason you don't
          want a U.S. based mutual fund that pays out high
          dividends.  A non-dividend paying fund, in which the
          increase goes solely to a higher share price is fine,
          because the United States is also a tax haven for
          foreign investors on capital gains.  
               Because of this, savvy investment managers in the
          U.S. usually manage foreign accounts separately,
          because short term trading profits (as well as long
          term ones) are totally tax free to the foreign account
          holder, but taxable to an American.  
               Real estate used to be exempt from capital gains
          tax for foreign investors, but that is no longer the
          case.  After a fantasy scare about "rich Arabs buying
          up all the farmland" special taxes were placed on
          foreign property investors.  (A later government study
          found that in fact less than 1% of all farm property
          was owned by foreign citizens, very few of them Arabs.)
          
          
          The Puerto Rico Loophole
          
               Some U.S. taxpayers find tax benefits by
          establishing residence in Puerto Rico.  Since Puerto
          Rico is a commonwealth of the United States and has a
          similar tax system, the United States exempts income
          earned in Puerto Rico if you establish a bona fide
          residence there.  For immigration purposes Puerto Rico
          is part of the United States.
               Provided that you are resident in Puerto Rico for
          the entire calendar year, you file a Puerto Rico tax
          return instead of a U.S. tax return.  Puerto Rico taxes
          all income on a worldwide basis.  You should check out
          the Puerto Rican tax situation before trying to qualify
          for this provision.  You will be subject to Puerto
          Rican taxes, and Puerto Rico is not a tax haven.  You
          might, in fact, find the country a tax liability, as
          its rates are now generally higher than in the U.S.
               The one particularly interesting exception,
          however, is that dividends paid from a Puerto Rican
          company that has a tax holiday (such as the ten year
          exemption granted to new factories) is free of Puerto
          Rican tax.  One U. S. couple owned a small
          manufacturing business in Puerto Rico.  In the tenth
          year, they sold the business, but not the corporation,
          and paid a liquidating dividend from the corporation. 
          Just before the tenth year, they established residence
          in Puerto Rico, and maintained it for the entire
          calendar year in which the liquidating dividend was
          paid.  Total exemption from tax on the final payout!.
               Since the dominant language and culture in Puerto
          Rico are Spanish, if you are immigrating to the U.S.
          from a Spanish-speaking country, you may find it
          preferable to make your base in Puerto Rico instead of
          the mainland, and have the tax advantages as well.  In
          this case you could be continuously living on tax-free
          profits from the business.  Salary payments would be
          subject to the Puerto Rican income tax rates, but
          dividends from the ongoing business would not be.
               There are some older tax holiday laws on the books
          in Puerto Rico that are often overlooked.  For example,
          a ten year exemption from tax for companies engaged in
          export of a locally made or assembled product.  This is
          often a more useful exemption than some of the
          manufacturing exemptions which give only a partial
          exemption in urbanized areas.
               Another way to play a different Puerto Rico tax
          angle is if you are entering the U.S. to operate your
          own business, and intend to eventually leave the U.S. 
          A foreign corporation with a branch in Puerto Rico is
          only taxed on Puerto Rico source income.  If you create
          a Panamanian corporation, open a branch for it in
          Puerto Rico, and accumulate the profits in the
          corporation, you can then take the money out of the
          corporation once you are no longer a U.S. (or Puerto
          Rican) taxpayer.  In this situation you would be taxed
          on the salary you pay yourself out of the corporation,
          which you would keep as low as possible, and then let
          most of the money stay as profits.  
               This angle works particularly well for a
          consulting or other service business, or for a mail
          order or publishing business.  Since Puerto Rico is
          within U.S. domestic mail and telephone systems, it can
          be used as a base for such enterprises very easily.  It
          also works the other way -- the Puerto Rican branch
          office could be a business engaged in export
          representation of products to Latin America, since
          transportation from San Juan, Puerto Rico, to most
          points in Latin America is very easy with good flight
          schedules.  Some major American corporations have done
          exactly this -- they created Panamanian sales
          subsidiaries for their Latin American business, and
          operate the subsidiaries out of Puerto Rico, from where
          the sales representatives can easily call on clients
          throughout the hemisphere.
          
          
          The Men Who Would Be Kings
          
               Two people in recent years have become so fed up
          with taxes that they declared independence.
               The first was Roy Bates, a former pirate radio
          station operator in England.  He laid claim to an
          abandoned fort in the English channel, just outside the
          three mile territorial limit.  He declared it to the
          Principality of Sealand.
               Subsequent litigation in the British courts
          established that the fort was indeed outside of the
          British jurisdiction, and that the British Crown had in
          fact abandoned it.  
               No country has ever diplomatically recognized his
          independence, but since the only sovereign with a
          competing claim, Her Majesty Queen Elizabeth II has
          been found by one of her own courts not to be the
          sovereign of Sealand, Roy Bates has achieved his legal
          independence.
               The lack of diplomatic recognition is not
          necessarily a handicap.  There are several very real
          countries with little or no diplomatic recognition. 
          The "homelands" that were granted "independence" by
          South Africa are recognized only by South Africa. 
          Politicians elsewhere may treat their independence as a
          joke, but international treaties don't apply to them.
               The Turkish Republic of Northern Cyprus is
          recognized only by Turkey.  But it is quite obviously
          there, well populated, and occupying half of the island
          of Cyprus.
               Andorra has been an independent state for hundreds
          of years, has its own passports, and approximately 200
          square miles of land (depending upon which way you
          measure the mountainsides).  It does not have
          diplomatic relations with anyone -- not even the two
          neighbors, France and Spain, that surround it.  It has
          never been a party to any international treaty -- but
          it is a very real country, and a very popular tourist
          destination.
          
          Hutt River Province
               More recently, an enterprising Australian has been
          trying to make the idea work.  Leonard Castley, a
          Western Australian farmer, seceded from the
          Commonwealth of Australia in 1970.
               He then proceeded to crown himself sovereign of
          his own principality, and stopped paying taxes to
          Australia.
               He calls it the Hutt River Principality, and it
          has become something of a tourist destination, with
          busloads of Japanese tourists stopping to buy
          souvenirs.   Recently the Hutt River Principality
          issued the world's first palladium coin, which was
          minted in the United States, and sold by coin dealers
          in various countries.
               In square miles, Hutt River Province Principality
          dwarfs both Vatican City and Monaco.
               Like most of Western Australia, however, it is
          sparsely populated.  For most of the year, the
          population stands at about 30 (most of whom are royal
          family members); during peak harvest period, it is
          about twice that.
               The Hutt River Province Principality issues
          passports and visas to visitors and mints currency
          embossed with an image of the prince.  Stamps are sold
          as collector's items.  About 10,000 people around the
          globe have become citizens of Hutt River, although the
          passports do not have legal recognition anywhere (yet).
               The outcome of the legal battle with Australia is
          still undetermined, and they have not recognized the
          claims to independence.
               For further information, contact Prince Leonard of
          Hutt River, Binnu West, Australia 6532; tel. (61-99)
          366-035.  
          
               These approaches may not work, but we pass them
          along for inspiration.  With creativity you may find
          your own unique and successful solution, and create
          your own personal tax haven.
          
          
          Be A PT ... Don't Live Anywhere At All!
          
               The majority of Somalis are nomads who have proved
          themselves gratifyingly resistant to the chaos of civil
          war and famine.  While Western attention has been
          focused on farmers and devastated city dwellers, the
          nomads continue to use their mobility -- as they have
          for centuries -- to avoid much of the hardship.
               Cities and mechanized agriculture, the results of
          "civilization," are first to be hurt when the structure
          of civil order collapses.  War has destroyed the
          largest towns; farmers were quickly cut off from
          supplies with the onset of hostilities.
               Nomads, with camel, goat, and sheep herds, are
          highly mobile and can generally avoid areas where there
          is fighting.  Camels, in particular, are natural
          survival aids in Somalia.  They permit the nomads to
          scrape a bare subsistence from the arid semi-desert. 
          War and famine have driven up the price of grain,
          forcing nomads to barter away more of their animals to
          obtain it.  Nevertheless, the incalculable effects of
          war affect the nomads, though later and less intensely
          than they impinge on the settled populace.
               On an international scale there is a survival
          lesson here for the civilized world as well.  Do you
          want to escape the control over your life and property
          now held by modern governments?  The PT concept could
          have been called Individual Sovereignty, because PTs
          look after themselves.  We don't want or need
          authorities dominating every aspect of our existence
          from cradle to grave.  The PT concept is one way to
          break free.
               In a nutshell, a PT merely arranges his or her
          "paperwork" in such a way that all governments consider
          him a tourist -- a person who is just "passing
          through."  The advantage is that being thought of by
          government officials as a person who is merely "parked
          temporarily", a PT is not subjected to taxes, military
          service, lawsuits, or persecution for partaking in
          innocent but forbidden pursuits or pleasures.  Unlike
          most citizens or subjects, the PT will not be
          persecuted for his beliefs or lack of them.  PT stands
          for many things: a PT can be a "prior taxpayer,"
          "perpetual tourist," "practically transparent,"
          "privacy trained," or "permanent traveler" if he or she
          wants to be.  The individual who is a PT can stay in
          one place most of the time.  Or all of the time.  PT is
          a concept, a way of life, a way of perceiving the
          universe and your place in it.  One can be a full-time
          PT or a part-time PT.  Some may not want to break out
          all at once, or become a PT at all.  They just want to
          be aware of the possibilities, and be prepared to
          modify their lifestyle in the event of a crisis. 
          Knowledge will make you sort of a PT -- a "possibility
          thinker" who is "prepared thoroughly" for the future.
               The PT concept was created by Harry Schultz, the
          financial consultant and author of a number of books on
          investing that were best sellers in the 1970s.  
               Today there is a publishing company in Britain
          specializing in books for the PT -- unique titles on
          tax havens, obtaining a second citizenship, living in
          exotic locations, buying a tax free car, and making
          money internationally.  Even if you never buy the
          books, just reading the catalog is fascinating.  The
          catalog is free, and can be had by writing Scope
          International Ltd., Forestside House, Forestside,
          Rowlands Castle, Hants. PO9 6EE, Great Britain.
               PT is elegant, simple, and requires no
          accountants, lawyers, offshore corporations, nor other
          complex arrangements.  Since the income of most PTs is
          immediately doubled, and most frustrations of life with
          Big Brother are instantly eliminated, the logical
          question is only: "Can you afford not to become a PT?"
               The PT, once properly equipped, operates outside
          of the usual rules, gaining mobility and a full slate
          of human rights.  The value of these rights cannot even
          be perceived by people who have never experienced them.
               The message of PT is not, however, to encourage
          greed, lust, irresponsibility, immorality or any of the
          other seven deadly sins.  The effect of PT being
          popularized will be to release creative souls from the
          many burdens of coping with Big Brother.
               You don't need to found a new country or displace
          someone else to make yourself a sovereign.  The PT need
          not dominate other people.  He or she must only be
          willing to break out of a parochial way of thinking:
          the PT must be superior only in that small area located
          between the ears.  We speak of the potential PT now in
          terms of wealth, talent, intelligence and creativity. 
          Who is this PT in the upper minuscule of the
          population?  It might well be you...
          
          
          The $70,000 -- and More -- Offshore Loophole
          
               If you're a typical cash-poor American, you could
          increase your standard of living dramatically if you
          could avoid throwing away 40% or more of your income on
          taxes each year.  Thousands of Americans are doing that
          right now, and many more can.  It's one of the clearest
          provisions in the tax code.  As you will learn in this
          report, the loophole actually is broader, and allows
          you to earn far more tax-free income, than even most
          expatriates realize.
               The loophole is known as the foreign-earned-
          income-exclusion or the "$70,000 exclusion." It allows
          for U.S. citizens who live and work outside the U.S. to
          exclude from gross income up to $70,000 of foreign-
          earned income.  In addition, an employer-provided
          housing allowance can be excluded from income.  There
          are other tax breaks available: Each member of a
          married couple working overseas, for example, can
          exclude salary of up to $70,000.  That's a total of
          $140,000, plus housing allowances.
               It is important to note that this is not a
          deduction, credit, or deferral.  It is an outright
          exclusion of the income from gross income.
               Naturally, to get these benefits you have to meet
          certain requirements:
               * You must establish a tax home in a foreign
          country.
               * You must pass either the "foreign-residence
          test" or the             "physical-presence test."
               * You must have earned income.
               In the rest of this chapter, we'll discuss these
          tests and give some tips on maximizing tax-free income.
          
          Home is where the money is 
               In the IRS view of the world, your tax home is the
          location of your regular or principal place of
          business.  That is, the tax home is where you work, not
          where you live.
               Take a look at what happened recently to one
          taxpayer who did not check the rules carefully.  He is
          a flight engineer who lives in the Bahamas, but all his
          flights originate from Kennedy Airport in New York. 
          The Tax Court ruled, not surprisingly, that his tax
          home is in New York, not in the Bahamas.  The flight
          engineer does not qualify for the $70,000 exclusion.
               But the definition goes further for the foreign-
          earned-income exclusion.  This is a trap that catches
          many Americans overseas who think they are earning tax
          free income.  If you work overseas and maintain a place
          of residence in the United States, your tax home is not
          outside the U.S.  In other words, to qualify for the
          foreign-earned-income exclusion you have to establish
          both your principal place of business and your
          residence outside the United States.
               This trap catches a number of construction and oil
          workers.  These workers generally work on a
          construction site or oil platform for three to six
          months.  They get a few weeks or months off.  Many of
          them make the mistake of leaving their family and
          personal possessions at their U.S. home and visiting
          this home during their vacations.  They can't use the
          offshore loophole because they never establish a tax
          home outside the United States.  They maintained a
          place of residence in the United States.  You need to
          sell or rent your U.S. home and establish a primary
          residence outside the United States.
               After establishing your tax home, you must pass
          one of two additional tests.  
          
          Counting the days
               The more straightforward test is the physical
          presence test.  To pass the test, you must be outside
          of the United States for 330 days out of any 12
          consecutive months.  The days, of course, do not have
          to be consecutive.  That sounds very simple, but there
          are a number of smaller rules that can complicate it. 
          Few people begin their foreign assignments on Jan. 1
          and end them on Dec. 31.  Thus for most people, the
          first and last 12 months of their overseas stay will
          occupy two tax years.  This requires them to prorate
          their income and the $70,000 exclusion for those tax
          years.
               In addition, to count a day as one spent outside
          of the United States, you must be out of the United
          States for the entire day.  There are exceptions for
          traveling days and days spent flying over the United
          States if the flight did not originate there.  The IRS
          has a number of rules on counting days.      If you are
          going to travel back and forth between the United
          States and foreign countries and if you want to try to
          pass this test, you'll have to learn the rules and
          count days very carefully.
          
          An easier way?
               The subjective test, known as the foreign-
          residence test, is probably easier for most taxpayers
          to pass.  You must establish yourself as a bona fide
          resident of a foreign country or countries for an
          uninterrupted period that includes an entire taxable
          year, and you must intend to stay there indefinitely. 
          If you do not pass this test, you are considered by the
          IRS a transient, or sojourner, instead of a foreign
          resident, and will not qualify as a foreign resident.
               According to the tax law, your residence is a
          state of mind.  It is where you intend to be domiciled
          indefinitely.  To determine your state of mind, the IRS
          looks at the degree of your attachment to the country
          in question.  A number of factors, none of them
          decisive or significantly more important than the
          others, are examined.  The bottom line is that you
          establish yourself as a member of a foreign community. 
          The factors include the following:
               Sleeping quarters: A transient is more likely to
          sleep in a hotel; a resident likely owns housing or
          signs at least a year-long lease.
               Personal belongings: The more you take to the
          foreign country, the more you seem to be establishing a
          foreign residence.  Leaving most of your personal
          belongings in temporary storage in the United States
          indicates an intention to keep that country as your
          residence.
               U.S. property: Owning a U.S. residence that you
          leave vacant is a sign of an intention not to establish
          a foreign residence.  But selling or renting your U.S.
          residence indicates an intention to establish a foreign
          residence.
               Local documents: It is helpful to obtain a foreign
          drivers license and foreign voter registration when
          possible.  But maintaining your U.S. license and voter
          registration won't kill your chances.
               Local involvement: You should show involvement in
          local social and community activities to the same
          extent you were involved in such activities in the
          United States It is also helpful to let U.S. club
          memberships lapse while you are overseas, or to join
          similar clubs overseas.  If you want to keep U. S.
          memberships in clubs that are hard to rejoin, see if
          you can convert them to a non-resident membership for
          the duration.  (You may save on dues as well.)
               Foreign taxes: Foreign countries tax on the basis
          of residence.  If you claim exemption from local taxes
          because you are not resident in that country, the IRS
          will conclude that you are a U.S. resident and do not
          qualify for the foreign-earned-income exclusion under
          the foreign-residence test.  Thus some people prefer to
          qualify under the physical-presence test rather than
          under the foreign residence test.  With the physical-
          presence test, you might be able to claim that you are
          not a resident of the foreign country and thereby
          exempt from their taxes.  At the same time, you can
          claim exemption from U.S. taxes.
               Bank accounts: This does not seem to greatly
          affect residence status.  But if your case seems to be
          borderline, it is a good idea to open at least a local
          checking account even if a U.S. account is maintained. 
          Many U.S. expatriates maintain U.S. accounts because it
          is easier to have their U.S. employers deposit
          paychecks directly in the U.S. account.
               Permanent address: You will occasionally complete
          documents, such as passport applications, that ask for
          a permanent address.  It is best to list a foreign
          address or some address of convenience, such as a
          friend's or relative's, from which your mail can be forwarded.
               Once your foreign residence is established, you
          must show that it is for an indefinite duration.  If
          you have plans to return to the United States after a
          definite time has passed, you are not a foreign
          resident.  In deciding whether or not the foreign
          residence is indefinite, the IRS generally looks at
          your employment contract.  (Note that it is permissible
          to have a vague intention to return to the U.S.
          someday.  But if you have in mind a definite limit to
          your foreign stay, you will have problems establishing
          that you are a foreign resident.)
               Generally, if your employment contract lasts for
          one year or less, that is an indication that you have a
          definite intent to return to the United States after a
          short period of time.  You would not be able to qualify
          as a foreign resident.  But if the contract is
          indefinite, open-ended, can be renewed, or is likely to
          lead to a new job, you probably can qualify as a
          foreign resident.  It is best to have a contract that
          does not pertain to a definite project.  If there is no
          written contract, the IRS will examine the nature of
          the job, the employer's personnel manual, and any other
          facts that indicate the intentions of you and your
          employer.
               After establishing the residence, you can make
          occasional trips to the United States for business or
          vacations without losing your foreign-residence status. 
          Just be certain that the trips are temporary, and that
          you do not disturb any of the factors that qualify you
          as a foreign resident.
          
          Which income to exclude
               Once you have qualified for the offshore loophole,
          you must identify the kind of income that qualifies. 
          Not all income qualifies for the exclusion -- only
          foreign-earned income.
               Foreign-earned income is income paid for services
          you have performed in a foreign country.  This includes
          salaries, professional fees, tips, and similar
          compensation.  Interest, dividends, and capital gains
          do not qualify.
               Self-employed people must adhere to some
          additional rules.  Professionals who do not make
          material use of capital in performing their services
          can qualify all of their net income for the loophole. 
          But when both personal services and capital are used to
          generate income, no more than 30% of net profits will
          be considered eligible for the exclusion.  Note that
          for self-employed individuals and for partners, the net
          income is the amount that is applied toward the
          exclusion limit, not the gross income.
               Other types of income that do not qualify for the
          loophole include the following: employer-provided meals
          and lodging on the business premises, pension and
          annuity payments, income paid to employees of the U.S.
          government or its agencies, non-qualified deferred
          compensation, disallowed moving expense reimbursements,
          income received two years or more after you earn it. 
          But some of these paymentssuch as employer-provided
          meals and lodging on the business premisesare tax-free
          under regular U.S. tax rules and retain that status. 
          This is one way you can earn more than $70,000 tax-
          free.
               The $70,000 limit on the offshore loophole applies
          to individual taxpayers.  So if you are married, you
          and your spouse potentially can exclude up to $140,000
          of foreign-earned income.  But you cannot share each
          other's limit.  For example, if one of you earns
          $80,000 and the other earns $30,000, you exclude only
          $100,000 on the return ($70,000 plus $30,000).
          
          Don't close the loophole
               Too many U.S. expatriates inadvertently close the
          offshore loophole.  There are several ways of doing
          this.
               One way is not to realize that the provision has
          requirements that must be met.  Many Americans assume
          that since they are living overseas, everything they do
          is free from U.S. tax.  That's not so.  You've seen
          some examples of that in this chapter already, and
          there are other regulations for taxpayers in different
          situations.  Special situations include not being
          overseas for the full year and receiving advance or
          deferred payments of income, bonuses, and other special
          income items.  It is well worth your while to discuss
          the matter with a tax attorney or accountant who
          understands the offshore loophole.  Go over your
          situation and your plans in detail before leaving the
          United States.  That way, you'll be sure to qualify for
          and make maximum use of this loophole.
               Another way people close this loophole is by not
          filing tax returns.  To get the exemption, you must
          file a tax return and claim the exemption on Form 2555. 
          The IRS has had success in recent years contending that
          anyone who does not file the return loses the loophole,
          even if he meets all the requirements.  Be sure you
          file the return and properly claim the loophole.  The
          loophole exempts your foreign-earned income from tax,
          but it does not exempt you from the filing requirement.
               Recent tax laws, plus some heavy criticism from
          the General Accounting Office, have caused the IRS to
          increase its monitoring of U.S. citizens overseas.  The
          IRS now reviews passport applications and renewals to
          ensure that you not receive or renew a passport unless
          your tax returns are filed and paid up.  The IRS is
          also looking for expatriate Americans and informing
          them of their tax obligations.  It is estimated that
          about two-thirds of expatriate Americans are not filing
          any U.S. tax returns, and the IRS aims to change that. 
          Be sure to file your tax returns.
          
          Tax credit option
               Instead of excluding income from taxes, you can
          take a deduction for foreign taxes paid on the income. 
          But the foreign tax credit can get complicated, and in
          almost all cases, you'll find that it makes more sense
          to exclude income than it does to take the credit.  But
          if your foreign-earned income exceeds the $70,000
          limit, look into taking the credit for taxes paid on
          the income that exceeds the exclusion amount.
          
          Beware those other taxes
               The disappointing part of the $70,000 exclusion is
          that it applies only to federal income taxes.  The
          Social Security tax might still apply to salaried
          employees, and the self-employment tax might still
          apply to self-employed individuals.  The self-employed,
          for example, still figure their net self-employment
          income on Schedule C.  The net income up to $70,000
          still is excluded from gross income.  But it also is
          used on Schedule SE to compute the self-employment tax. 
          For salaried workers with U.S.-based employers, the
          employer is supposed to withhold Social Security taxes. 
          Possible exemptions are discussed later.
          
          Expanding the loophole -- exempt more than $70,000
               The $70,000 offshore loophole is generous, but
          savvy taxpayers know how to make it even more generous. 
          In many situations, you can exclude or deduct foreign
          housing costs.      You have an option here.  You can
          deduct your housing costs to the extent that they
          exceed a base amount.  Or if your employer reimburses
          you for the excess, the reimbursement can be excluded
          from income.
               To get the write-off or exclusion, you must meet
          the same tests as for the foreign-earned income
          exclusion.  That means either establishing a foreign
          residence or meeting the physical-presence, test as
          well as establishing a foreign tax home.  
               The all-important base housing amount is 16% of
          the salary of a federal government employee with the
          grade of GS-14, Level 1.  You use the salary that was
          effective on Jan. 1 of the year you became eligible for
          the housing loophole.  If you are not eligible for the
          loophole for the entire year, the base amount must be
          prorated, just as the income exclusion is prorated in
          that situation.
               When your employer pays or reimburses you for
          qualified housing expenses, you can exclude from income
          the amount of the employer's payments that exceed the
          base housing amount.  The employer's payments that
          qualify can be made in any of the following forms: part
          of your salary; reimbursements for housing, the
          education of your dependents, or tax equalization, or
          employer-provided meals and lodging that are not
          excluded from income under the regular tax rules.  Any
          of these kinds of expenditures also qualify for the
          exclusion if they are made directly to a third party
          instead of to you.
               If you and your employer agree that a part of the
          payments received is for housing, but you have no firm
          agreement as to how much is for salary and how much is
          for housing, you still get to use the housing
          exclusion.  The excludable amount is your actual
          housing costs minus the base housing amount.
               The exclusion cannot exceed either your foreign-
          earned income or the employer-provided payments for
          housing expenses.  In addition, the exclusion for
          housing expenses is applied before the foreign-earned-
          income exclusion.  The effect of this is to make it
          harder to excluded housing expenses against non-earned
          income, such as dividends and interest.
               Suppose you are self-employed, or suppose your
          employer does not provide payment or reimbursement for
          housing expenses.  In these cases, instead of excluding
          the amount from income, you can take a deduction for
          the excess housing expenses if you meet the same
          eligibility rules as for the exclusion.  The deduction
          is computed the same way as the exclusion.  You
          subtract the base amount from your total qualified
          housing expenses, and then you subtract any employer-
          provided payments for housing expenses.  Whatever is
          left over is your deduction.
               The deduction cannot be more than the difference
          between your foreign-earned income and the combination
          of the foreign-earned-income limitation ($70,000) and
          any exclusion you take for housing expenses.  In other
          words, your foreign-earned income must be above the
          exclusion limit of $70,000 in order for you to take the
          deduction.  If you cannot deduct the expenses, you
          might be able to deduct some of them the following year
          if your foreign-earned income exceeds the limit. 
          Consult your tax advisor to see if you qualify.
          
          A few limits
               The exclusion or deduction for housing expenses
          applies only to reasonable housing expenses.  The IRS
          gives no clear-cut definition of reasonable.  Most tax
          advisors say that if your foreign housing is of the
          same standard that you were used to in the United
          States, it should be considered reasonable.
               The following types of expenses qualify for this loophole:
               * Rent
               * Fair rental value of employer-provided housing
               * Utilities, except telephones
               * Insurance on real and personal property
               * Occupancy taxes that are not normally deductible
          under             U.S. tax law
               * Non refundable lease fees
               * Rent for furniture and accessories
               * Repairs
               * Parking fees
               The following types of expenses do not qualify for
          this loophole:
               * Capital expenditures, such the costs of
          purchasing, constructing, or improving a home
               * Purchase cost of furniture and accessories
               * Domestic labor
               * Mortgage-principal payments
               * Depreciation
               * Interest and taxes that normally are deductible
               * Deductible moving expenses
               * Pay-television subscriptions
          
          The second overseas home loophole
               A few taxpayers are able to exclude or deduct the
          expenses of two homes outside the United States.
               To do this, you must show that the location of
          your tax home, or principal residence, is subject to
          adverse living conditions.  That is, the living
          conditions must be "dangerous, unhealthful, or
          otherwise adverse." If the location of your tax home is
          in a state of war or civil insurrection, you are living
          in adverse conditions.  A different kind of adverse
          condition is when the employer's business premises are
          a drilling rig, construction project, or similar
          operation; the taxpayer lives there; and it is not
          feasible for the taxpayer's family to reside there.  In
          this case, a second overseas home can be established
          for the family, and the expenses qualify for the
          exclusion.
               If you think you might qualify for one of these
          exclusions, consult a tax advisor.  There have been
          numerous regulations, cases, and rulings in regard to
          these matters.  The tax advisor should be able to make
          sure you meet the requirements for maximum tax
          benefits.
               Like the foreign-earned-income exclusion, the
          allowance for housing expenses is determined separately
          for spouses.
          
          The Social Security offshore loophole
               Not many people know this but the U.S. has
          agreements that exempt overseas workers from either the
          U.S. Social Security tax or that of the adopted nation.
               Most developed countries have some form of social
          security tax.  The problem for many U.S. expatriates in
          the past was that many foreign social security taxes
          are far broader and have far higher rates than does the
          U.S. Social Security tax.  In some countries, it is
          equivalent to our income tax, with rates above 30%.
               The agreements, known as totalization agreements,
          dictate that U.S. citizens who are temporarily working
          overseas are subject only to the U.S. Social Security
          tax and are exempt from the host country's tax.  The
          United States has signed such agreements with 12
          countries so far: Belgium, Canada, France, Germany,
          Italy, the Netherlands, Norway, Portugal, Spain,
          Sweden, Switzerland, and the United Kingdom.  A much
          larger number of countries will exempt you from paying
          the local social security tax, without a treaty,
          provided you present both proof that your employment is
          temporary, and that you are covered by U.S. social
          security. 
               To be exempt from the host country's tax, you must
          qualify as a "detached worker."  A detached worker is
          one whose assignment in the host country is expected to
          last five years or less.  The wording differs somewhat
          in each treaty, so be sure to have that checked out
          before accepting a foreign assignment.  If you are not
          a detached worker, you are exempt from U.S. Social
          Security tax and are subject to the host country's tax. 
          The treaties also work for self-employed individuals. 
          Many U.S. employers who send their employees overseas
          do not even know about these treaties; this ignorance
          prevents employees from minimizing taxes on their
          foreign assignments.
               To qualify for the exemption, you must obtain a
          certificate from the U.S. Social Security
          Administration before the foreign assignment.  You can
          apply for a certificate and get other information about
          these agreements by contacting the Social Security
          Administration, Office of International Policy, P.O.
          Box 17741, Baltimore, MD 21235.  Pamphlets about
          agreements with individual countries are available from
          the same address.
          
          The State and Local Tax Loophole
               The United States government taxes all its
          citizens, wherever they live in the world.  Most
          foreign countries tax only their residents or
          domiciliaries.  If a British citizen moves to the
          Cayman Islands and establishes residence there, he is
          not subject to British taxes.
               States in the United States tax the way foreign
          countries dobased on residence.  Therefore, when you
          establish a residence outside the United States, you
          avoid its state and local income taxes.  For residents
          of high-tax states, this is not a minor consideration. 
          Around one-third of some people's U.S. tax bill is made
          up of state and local taxes.  Take this into account
          when deciding whether or not to take advantage of the
          offshore loophole.  But states have a broader
          definition of residence.  Some states require you to
          sever all contacts in order to cease residency.
          
          The Foreign Tax Loophole
               U.S. taxes are only part of the picture.  Unless
          you move to a no-tax haven, you must examine the tax
          code of the host country to determine your tax
          obligations there.
               Again, most countries tax on the basis of
          residence or domicile.  The rules vary from country to
          country, but usually someone who has established a
          place of abode in a country for more than six months is
          a resident or domicile.  This often means that you can
          be considered a resident of two countries at the same
          time and can be subject to taxes in both countries.  Or
          you can be considered a resident of no country.
               Different degrees of residence are taxed
          differently.  For example, the United Kingdom uses the
          terms "domiciled" and "ordinarily resident", along with
          "resident." Someone who is domiciled in the United
          Kingdom is taxed in the United Kingdom on all worldwide
          income.  Someone who is ordinarily resident or
          resident, but not domiciled, might be taxed only on the
          income derived from U.K. sources.  The rule is similar
          in Ireland, and a lot of countries whose tax laws
          derived from the United Kingdom.
               We cannot survey the rules of all countries,
          though some are profiled in this report, but you should
          be aware of this potential problem and consider it
          before deciding to take advantage of the offshore
          loophole.  You might find ways to eliminate taxes from
          both the United States and the foreign country in
          question, or you might find ways to drastically limit
          the overall tax bite.
               Another consideration is the double-tax
          convention, or tax treaty.  The United States has tax
          treaties with about two dozen major countries.  The
          intent of the treaties is to ensure that individuals
          and businesses are not fully taxed by two countries on
          the same income.  But in many cases, the treaty can
          offer a more substantial advantage than that by
          reducing the total tax bill from what it would have
          been had only one country-in absence of a treaty-had
          taxed the income.  Your tax advisor should check any
          treaty before you make a decision about the offshore
          loophole. 
          
          The Home Sale Loophole
               If you want to qualify as a foreign resident,
          selling or renting your home is recommended.  But
          selling the home is not always required, and many
          expatriates retain their U.S. homes because they plan
          to return someday.  Expatriates who sell their homes
          after returning, however, could have some problems.
               Take a look at one IRS ruling: A taxpayer
          purchased a house in Washington, D.C., in 1969 and used
          it as a personal residence.  He was transferred out of
          the United States in 1982 and had someone house-sit
          until he returned to the United States in 1986.  He
          sold the home in 1987 and moved to New York City.  He
          planned to exclude from gross income $125,000 of the
          gain on the sale, since he was over age 55.
               But there was a problem.  The tax law requires
          that you own the home and use it as your principal
          residence for at least three out of the five years that
          immediately precede the sale.  Since the taxpayer was
          out of the country for most of that period, the house
          did not qualify as the principal residence, and he
          could not exclude the gain (Letter Ruling 8825021).
               He could have avoided the problem by staying in
          the D.C. home for at least another two years, or he
          could have deferred the gain by purchasing a new home
          in New York City.  He chose to rent an apartment.  He
          could have sold the home before leaving the country,
          deferred the gain by rolling the sale proceeds into a
          home in the foreign country, and then tried to qualify
          gain on the sale of that home for the $125,000
          exclusion when his foreign assignment ended.  But he
          did not properly plan for his foreign assignment, and
          he lost the tax benefit.
               A similar problem occurs when people sell their
          U.S. homes before taking an overseas assignment.  To
          defer the gain, you normally need to buy a new home
          within two years.  Civilians have 4 years if overseas
          and military members have 4 years (stateside or
          overseas).  This replacement period is suspended while
          military members are stationed outside the United
          States.  Note however, that the replacement period,
          plus any period of suspension, cannot last more than 8
          years after the sale of the home.  So if you are gone
          more than four years and do not purchase a foreign
          residence, the gain is not deferred.  You can defer
          gain by purchasing a foreign residence, since there is
          no requirement that the replacement residence be
          located in the United States.
          
          
          Deduct The Cost of Taking a Spouse on a Business Trip
          
               Not everyone can do this, but it is possible. 
          Your spouse's presence must have a bona-fide business
          purpose.  If your employer requires you to bring your
          spouse, the cost is deductible.  Generally, the IRS
          also allows the deduction if your spouse's presence is
          required to socialize with your business associates and
          their spouses.  If the spouse works for the business,
          the expenses will be deductible if the main reason for
          his or her presence is to learn new techniques relevant
          to his or her regular business duties.  Sometimes the
          presence of an executive's spouse serves a bona-fide
          business purpose.  The spouse's expenses can be
          deductible when the spouse's duties are to help the
          executive establish a close, friendly business
          relationship with customers; to tour manufacturing
          plants and make appropriate complimentary remarks about
          them; and to entertain customers and their spouses. 
          (Warwick, 236 F. Supp. 761) 
               Roy Disney could deduct the cost of taking his
          wife on a foreign trip because his wife's presence
          enhanced the family-entertainment image of Walt Disney
          Productions.  In one case a wife's expenses were
          deductible because the husband had an acute medical
          problem, the wife was trained to deal with the problem,
          and the wife would not have been taken on the trip but
          for these factors.  (Quinn, 77-1 USTC 9369).
          
          
          Swiss Annuities As An International Pension Plan
          
          
               Upon hearing the word "annuity" the majority of
          investors have a knee-jerk reaction, and negative
          visions of insurance salesmen float through their
          heads.  Most of us have something of a lifetime
          negativity towards insurance companies and insurance
          products anyway, but experience over the years has
          shown that there are times when they can play an
          important role in financial planning.
               Most people have an overconfidence in their own
          money management ability, combined with a worry about
          how a spouse will manage the money in case of death. 
          This is certainly a role that annuities can fill very
          well, because they provide a guaranteed income to cover
          family needs no matter what happens.  No worries about
          the spouse marrying a "gold digger" or getting taken by
          an investment scam. 
               But often the spouse with inherited money is the
          frugal one -- because that spouse knows that the
          inherited money is all there is to live on.  The money-
          earning spouse may well be the one taking unnecessary
          risks with the family capital -- either directly
          through poor business or investment decisions, or
          indirectly through business activities that lead to a
          lawsuit.  In these circumstances an annuity bought
          before the venture can have a wonderful insulating
          effect -- the ultimate security blanket against
          entrepreneurial failure.  Somebody with $500,000 to
          invest in a risky venture might find a better result in
          putting a portion of the money in an annuity, and then
          making the high risk investment with the remainder.  If
          the venture does bring the expected high rewards,
          everything is great, but if not, there is a bottom
          below which the entrepreneur will not fall.  In these
          circumstances an annuity that matches monthly expenses
          (including the mortgage) can make a huge difference to
          the family.
               There is a similar philosophy in investment
          management -- often the 5% of a portfolio that is
          devoted to speculation, perhaps commodities futures,
          makes more than the other 95% of the portfolio.  But
          the security of that other 95% is what allows the
          prudent speculation that might be a 100% loss.   With
          the basic nest egg covered, one can then afford to
          pursue an occasional really big gamble that might
          achieve super results.
               For an international entrepreneur, a Swiss annuity
          can be particularly important, because it often can be
          a substitute for a U.S. individual retirement account
          or Keogh plan.   If you have arranged affairs to avoid
          paying U.S. taxes, then you can't make contributions to
          a qualified U.S. pension plan.  The Swiss annuity
          provides an admirable substitute.
               Once the basic decision is made to consider an
          annuity, it can be used as a tool for international
          diversification as well.  This provides capital
          preservation by not being totally linked to one
          currency.  It is important not to think only in terms
          of U.S. dollar investments.  Annuity need not mean a
          poorly performing junk bond fund run by an unrated
          insurance company.  There are some excellent products
          in the marketplace, often little known because it is
          the worst products (with accordingly high commissions)
          that tend to get promoted by high-pressure insurance
          salesmen on the telephone or in "free" investment
          seminars advertised in the local paper.
               According to Swiss law, insurance policies --
          including annuity contracts -- cannot be seized by
          creditors.  They also cannot be included in a Swiss
          bankruptcy procedure.  Even if an American court
          expressly orders the seizure of a Swiss annuity account
          or its inclusion in a bankruptcy estate, the account
          will not be seized by Swiss authorities, provided that
          it has been structured the right way.
               There are two requirements: A policyholder who
          buys an annuity from a Swiss insurance company must
          designate his or her spouse or descendants, or a third
          party (if done so irrevocably) as beneficiaries.  Also,
          to avoid suspicion of making a fraudulent conveyance to
          avoid a specific judgment, under Swiss law, the person
          must have purchased the policy or designated the
          beneficiaries not less than six months before any
          bankruptcy decree or collection process.
               The policyholder can also protect the policy by
          converting a designation of spouse or children into an
          irrevocable designation when he becomes aware of the
          fact that his creditors will seize his assets and that
          a court might compel him to repatriate the funds in the
          insurance policy.  If he is subsequently ordered to
          revoke the designation of the beneficiary and to
          liquidate the policy he will not be able to do so as
          the insurance company will not accept his instructions
          because of the irrevocable designation of the
          beneficiaries.
               Article 81 of the Swiss insurance law provides
          that if a policyholder has made a revocable designation
          of spouse or children as beneficiaries, they
          automatically become policyholders and acquire all
          rights if the policyholder is declared bankrupt.  In
          such a case the original policyholder therefore
          automatically loses control over the policy and also
          his right to demand the liquidation of the policy and
          the repatriation of funds.  A court therefore cannot
          compel the policyholder to liquidate the policy or
          otherwise repatriate his funds.  If the spouse or
          children notify the insurance company of the
          bankruptcy, the insurance company will note that in its
          records.  Even if the original policyholder sends
          instructions because a court has ordered him to do so,
          the insurance company will ignore those instructions. 
          It is important that the company be notified promptly
          of the bankruptcy, so that they do not inadvertently
          follow the original policyholder's instructions because
          they weren't told of the bankruptcy.
               If the policyholder has designated his spouse or
          his children as beneficiaries of the annuity, the
          insurance policy is protected from his creditors
          regardless of whether the designation is revocable or
          irrevocable.  The policyholder may therefore designate
          his spouse or children as beneficiaries on a revocable
          basis and revoke this designation before the policy
          expires if at such time there is no threat from any creditors.
               These laws are part of fundamental Swiss law. 
          They were not created to make Switzerland an asset
          protection haven.  There is a current fad of various
          offshore islands passing special legislation allowing
          the creation of asset protection trusts for foreigners. 
          Since they are not part of the fundamental legal
          structure of the country concerned, local legislators
          really don't care if they work or not -- the fees have
          already been collected.  And since most of these trusts
          are simply used as a convenient legal title to assets
          that are left in the U.S., such as brokerage accounts,
          houses, or office buildings, it is very easy for an
          American court to simply call the trust a sham to
          defraud creditors and ignore its legal title -- seizing
          the assets that are within the physical jurisdiction of
          the court.  
               Such flimsy structures, providing only a thin
          legal screen to the title to local property, are quite
          different from real assets being solely under the
          control of a rock-solid insurance company in a major
          industrialized country.  A defendant trying to convince
          a local court that his local brokerage account is
          really owned by a trust represented by a brass-plate
          under a palm tree on a faraway island is not likely to
          be successful -- more likely the court will simply
          seize the asset.  
               But with the Swiss annuity, the insurance policy
          is not being protected by the Swiss courts and
          government because of any especial concern for the
          foreign investor, but because the principle of
          protection of insurance policies is a fundamental part
          of Swiss law -- for the protection of the Swiss
          themselves.  Insurance is for the family, not something
          to be taken by creditors or other claimants.  No Swiss
          lawyer would even waste his time bringing such a case.
               Swiss annuities help the international
          entrepreneur to minimize the risk, by diversifying some
          of his assets into a secure investment.  They are
          heavily regulated to avoid any potential funding
          problem.  They denominate accounts in the strong Swiss
          franc, compared to the weakening dollar.  And the
          annuity payout is guaranteed.
               Swiss annuities are exempt from the famous 35%
          withholding tax imposed by Switzerland on bank account
          interest received by foreigners.  Annuities do not have
          to be reported to Swiss or foreign tax authorities.  
               A U.S. purchaser of an annuity is required to pay
          a 1% U.S. federal excise tax on the purchase of any
          policy from a foreign company.  This is much like the
          sales tax rule that says that if a person shops in a
          different state, with a lower sales tax than their home
          state, when they get home they are required to mail a
          check to their home state's sales tax department for
          the difference in sales tax rates.  
               The U.S. federal excise tax form (IRS Form 720)
          does not ask for details of the policy bought or who it
          was bought from -- it merely asks for a calculation of
          1% tax of any foreign policies purchased.  This is a
          one time tax at the time of purchase; it is not an
          ongoing tax.  It is the responsibility of the U.S.
          taxpayer, to report the Swiss annuity or other foreign
          insurance policy.  Swiss insurance companies do not
          report anything to any government agency, Swiss or
          American -- not the initial purchase of the policy, nor
          the payments into it, nor interest and dividends
          earned.
               A Swiss franc annuity is not a "foreign bank
          account," subject to the reporting requirements on the
          IRS Form 1040 or the special U.S. Treasury form for
          reporting foreign accounts.  Transfers of funds by
          check or wire are not reportable under U.S. law by
          individuals -- the reporting requirements apply only to
          cash and "cash equivalents" -- such as money orders,
          cashier's checks, and travellers' checks.
               Swiss annuities can be placed in a U.S. tax-
          sheltered pension plans, such as IRA, Keogh, or
          corporate plans, or such a plan can be rolled over into
          a Swiss-annuity.  
               Investment in Swiss annuities is on a "no load"
          basis, front-end or back-end.  The investments can be
          canceled at any time, without a loss of principal, and
          with all principal, interest and dividends payable if
          canceled after one year.  (If canceled in the first
          year, there is a small penalty of about 500 Swiss
          francs, plus loss of interest.) 
               Although called an annuity, these plans act more
          like a savings account than a deferred annuity.  But it
          is operated under an insurance company's umbrella, so
          that it conforms to the IRS' definition of an annuity,
          and as such, compounds tax-free until it is liquidated
          or converted into an income annuity later on.
               The only way for North Americans to get
          information on Swiss annuities is to send a letter to a
          Swiss insurance broker.  This is because very few
          transactions can be concluded directly by foreigners
          either with a Swiss insurance company or with regular
          Swiss insurance agents.
               So far one firm specializes in dealing with
          English speaking investors, and everybody in the firm
          speaks excellent English.  They are also familiar with
          U.S. laws affecting the purchase of Swiss annuities. 
          Contact:  Mr. Jurg Lattmann, JML Swiss Investment
          Counsellors, Dept. 212, Germaniastrasse 55, 8033
          Zurich, Switzerland; telephone (41-1) 363-2510; fax:
          (41-1) 361-4074, attn: Dept. 212.
          
          
