Tax is the driving force behind ‘offshore’, but for the great majority of well-off individuals considering offshore investment, tax is not directly an issue. They reside in high-tax areas such as the EU, the US, Canada or Japan, they pay their taxes, and if they make ‘offshore’ investments, it is in pursuit of higher returns, and without any intention to evade taxes in their home countries.
Some investors are outside the jurisdiction of high-tax areas, either because they live elsewhere, or because they are temporarily non-resident for work reasons. Such investors can often avoid having to pay taxes on their investments, whether on or offshore, but that is due to the investor’s circumstances, not the location of the investment.
Why an ‘offshore’ investment is superior to an onshore investment?
The first reason is because it is less regulated, and the behavior of the offshore investment provider, whether he be a banker, fund manager, trustee or stock-broker, is freer than it could be in a more regulated environment. Any G7 regulator will immediately say, oh, of course, if it’s unregulated, then it is riskier. Well, they would say that, wouldn’t they?
Who can benefit?
An offshore (i.e., non-US) mutual or commodities fund, which intends to trade on the US markets and/or appoint a US investment advisor, should be organized to comply with certain structural and administrative ‘rules’, in order to avoid its income and trading profits being subject to US federal corporate income tax and US federal branch profits tax.
Do Regulations Forbid Foreign Investment Or Banking?
Absolutely not. The U.S. and Canada encourage international trade and investment. As such, there are virtually no regulations forbidding citizens from doing business or having bank accounts in other countries. Should the U.S. or Canada ever forbid foreign banking or investing, international trade would quickly grind to a halt. This would cripple the world economy. Therefore, neither the U.S. nor Canada will ever forbid foreign business, banking or investing. Rather, sophisticated and knowledgeable individuals and corporations all over the world have used and will continue to use offshore tools.
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