There are Three Reasons Why it is Better to Invest Offshore

There are three basic reasons why investing offshore is typically better than investment in an individual’s country of origin. These reasons are a higher rate of return on investment, lower taxation, and less paperwork

Offshore investments typically provide a higher rate of return on investment, lower overall taxation, and less cumbersome regulation than investment in an individual’s or corporation’s country of origin. These are the basic three reasons why offshore investments commonly outperform investments in a person’s homeland. However, there are a lot more advantages to investing offshore.

There is a tendency for government and the law to become complicated. There is also precious little tendency for governments to review laws, tax codes, and the like with the purpose of making them simpler and fairer. Thus prosperous nations find themselves bogged down in the red tape of government. Businesspeople in these nations find themselves subsidizing government programs meant to pay off special interest groups. It is this situation of continual complication of living and doing business that provides an opportunity for nations offshore. It is because of the increasing difficulty in doing business and attending the personal matters that leads individuals and corporations to set up businesses offshore, bank offshore, move money into offshore trusts, or set up foundations for asset protection and privacy away from prying eyes.

In a broad sense offshore investment is keeping money in a jurisdiction other than an individual’s or corporation’s country or origin and, typically, country of residence. It can be as simple as setting up an offshore bank account in a nation where interest rates are favorable and the jurisdiction is tax advantaged. Investment can, obviously, go farther with investment in offshore business opportunities or even setting up business for oneself. To the extent that the individual or corporation wishes to take full advantage of many of the asset protection aspects and privacy aspects of offshore legal vehicles an investor may choose to set up a legal structure incorporating these features in order to guard investment gains. This having been said let’s look at the three primary reasons for why it is better to invest offshore.

Higher Rate of Return to Invest Offshore

It is fairly common to see higher interest rates in offshore banks

than in ones country of origin. Many parts of the planet are growing

their economies faster than Europe, North America, and Japan. Businesses

in these countries need capital and are willing and able to pay for it.

Because many solid businesses are located in “third world” countries

they often find it hard to raise capital and commonly pay a premium.

Thus a bank will lend at higher rates and, typically, pay higher

interest rates to depositors to attract needed capital. The rate of

business expansion in parts of Latin America, such as Panama where the

recession never happened, or the second tier nations of Asia who are

leading the world out of the recession is such than businesses need to

“offshore” from their nations for capital or pay higher interest rates

to attract money. This results in the same attractive investment

opportunity offshore, simply by banking money where interest rates can

be higher.

The “passive” investor who wants to invest offshore will bank his or her money and be happy with a higher interest rate than “back home.” However, the same factors that support growing economies throughout the offshore world also provide the intrepid business person or corporation with opportunities for very substantial profits. Rather than banking offshore, for example, an investor can obtain licensure and open a New Zealand Offshore Financial Company. Such a business is a bank in all but name, takes deposits from customers everywhere in the world except New Zealand and can engage in a whole range of offshore business as would an international bank.

Many other types of offshore business opportunities are available through government issued financial services licenses. Similar to the “banking” example listed above these are typically opportunities for business such as money transmission services, small loan operations, offshore trust formation, asset protection and management, and many others. The individual or corporation will have its headquarters in the jurisdiction where licensed and will do business throughout the world but not in the host nation. The “active” investor will take advantage of these opportunities to make money offshore. Then he or she will take advantage of offshore banking for a higher rate of return on deposits and, typically, lower taxes as well.

Lower Taxes Offshore

Many offshore jurisdictions are commonly referred to as “tax advantaged.” This just means that in some way, shape, or form the investor or bank depositor will pay less in taxes than if doing business or banking in their nation of origin. This comes about in number of way. First, in order to attract money for investment many offshore nations have little or no taxation on foreign investment, bank deposits, and the like. Unlike many nations banks in offshore jurisdictions typically do not deduct taxes from bank interest throughout the year. Although the depositor may have tax obligations “back home” his or her deposits will compound throughout the entire year before being taxed. Many offshore nations also have tax treaties with other nations so that no one pays double taxes on income.

Just as all countries throughout the world an offshore nation will commonly offer substantial tax advantages or even tax forgiveness for decades as an incentive for foreign investment in projects in that nation. Because of the competition for capital the incentives may well be more attractive offshore than “back home.”

Less Cumbersome Regulation Offshore

At the beginning we noted that there is a tendency for laws to become complicated and taxes to increase. Seeing that capital is attracted to nations with more streamlined legal systems and simpler tax codes many offshore jurisdictions have intentionally worked at keeping their laws simple and taxes easy, or non existent.

Setting up an offshore bank account can often be done in days, one day if paperwork is ready. Offshore corporations can be set up from pre existing shell corporations. Licensure for a wide variety of offshore financial businesses will typically cost around $27,000 t set up and $12,500 a year to maintain include renewing the license.

Commonly, to invest offshore is more lucrative, subject to advantaged taxation, and less paperwork intensive. It is small wonder that more individuals and corporations invest offshore every day. However, it is the integration of an offshore investment with offshore vehicles such as an offshore trust or Panama Private Interest Foundation that adds asset protection and privacy features to the offshore investment experience.

By Geir Holstad