The Good and the Bad of Offshore Investing

Canadian Fifty Dollar Notes
Canadian Fifty Dollar Notes

Offshore investing is often demonized in the media. The vast majority of offshore investment is, in fact, perfectly legal. Depending on your situation, offshore investing can offer many advantages. Offshore investment refers to a wide range of investment strategies that take advantage of the benefits that are offered outside your country of origin. There is no shortage of available assets: money market, bonds and stocks offered by well-known foreign companies that are fiscally sound, stand the test of time and, above all, legal.

There are several reasons why people invest offshore.

First, to reduce taxes. Many countries (known as tax havens) offer tax incentives to foreign investors. The favorable tax rates in a foreign country are designed to promote a healthy investment climate that attracts foreign wealth. For a small country with very limited resources and a small population, the attraction of investors can dramatically increase economic prosperity. Few taxes or tax laws apply to the offshore corporation formed for investing.

Second, is the diversification of assets. In some countries, regulations restrict the investment opportunities of investors. Many investors believe that such restriction hinders the establishment of a truly diversified investment portfolio. Offshore accounts offer more flexibility and give investors access to international markets and all the major exchanges.

Third is confidentiality. Many offshore jurisdictions have enacted laws which have established a strict series of laws concerning confidentiality in business and banking. There are serious consequences if this confidentiality is breached. However, this doesn’t mean that foreign investors are criminals who have something to hide. It is also important to keep in mind that extraterritorial laws allow disclosure of identity in clear cases of illegal activities.

There are disadvantages to offshore investment, though. Tax agencies, such as the IRS are not ignorant of these offshore strategies. New laws have been enacted against some traditional forms of tax evasion. There are still gaps, but most are shrinking more and more every year.

Cost is also an issue. Foreign bank accounts are not cheap to open. Depending on your investment goals and the jurisdiction in which you wish to open an account, it may be necessary to start an offshore corporation. This means steep legal costs. And many foreign accounts require minimum investments of between $100,000 and $1 million. Companies that make money by facilitating offshore investments know that their offerings are in high demand by the very wealthy and they charge accordingly.

More than half of the world’s property and investments are carried out in many offshore jurisdictions and well known companies have investment opportunities in these localities. In the majority of cases, the benefits of the investment overseas are offset by the tremendous costs of professional fees, commissions, travel expenses, and the downside risks. Despite the many difficulties, it can still pay to change some of your assets into an offshore account. With any investment you make, use common sense and choose a reputable investment firm. Consult an advisor who has experience in international investment.

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