Offshore Investing, Offshore Investments

Offshore investing is making investments outside one’s home country, targeting benefits offered to investors by firms and governments across the globe. The challenge for an investor is to identify offshore investments that minimize risk exposure, realize high returns and reduce tax obligations in a legal manner.

 

Offshore investing is making investments outside one’s home country, targeting benefits offered to investors by firms and governments across the globe. The challenge for an investor is to identify offshore investments that minimize risk exposure, realize high returns and reduce tax obligations in a legal manner.

 

How does Offshore Investing Work?

Offshore investing can be done by investors with the help of reputable financial entities, such as local bankers, portfolio managers and brokers. There is a wide range of offshore investment options, including bond, equity and money market assets (such as certificates of deposit, bankers acceptances, US Treasury bills, commercial paper, municipal notes and repurchase agreements or repos).

Offshore investing works in a manner similar to domestic investing. However, it is important for investors to have adequate knowledge of various investment vehicles and to seek professional advice in order to protect themselves from scams and unnecessary risks.

Setting up an offshore account is a popular choice opted for by high net worth individuals. This is typically done with the aim of tax saving. There are several countries that are famous tax havens, such as the Bahamas, the Cayman Islands, Switzerland, the Isle of Man and Bermuda, and have become popular offshore investment destinations. However, there may be certain requirements for opening an offshore account. This may include a minimum amount to be maintained in the account, fees and owning property in the destination country.

 

Benefits of Offshore Investing

Offshore investing is beneficial for investors because:

• These investments diversify the investment portfolio.
• One can explore lucrative investment opportunities surfacing in developing countries due to the privatization of several sectors.
• Offshore investing may help in reducing taxes. Several offshore investment destinations, also known as tax havens, offer attractive tax incentives to lure foreign investors.
• Some of the offshore investment destinations guarantee confidentiality. Several offshore investment destinations have a ‘secrecy legislation’ and strict banking and corporate confidentiality system.
• By investing in certain offshore destinations like Switzerland, investors can transfer their assets to legal entities via trusts, foundations and existing corporations. By transferring ownership on paper, investors can save their wealth and property from domestic issues and seizures.

 

Drawbacks of Offshore Investing

The drawbacks of offshore investing are:

• Tax agencies are tightening the purview of the tax laws in their respective nations. For instance, in the US, the Internal Revenue Service (IRS) department amended the Internal Revenue Code (IRC) in 2004 and levies taxes on Americans earning from offshore investments. At times, strict domestic laws nullify the profitability of offshore investments.Opening an offshore account is expensive and may include high legal fees, registration fee and minimum balance to be maintained.