Why Invest Offshore?
What does offshore mean with respect to banking and trading accounts and why invest offshore?
The term “offshore” originally comes from banks located offshore from England in the Channel Islands, but is now used figuratively to refer to banks in many regions, particularly Bermuda, the Cayman Islands, Bahamas and politically neutral European jurisdictions such as Switzerland and Luxembourg.
Individuals or organizations may be interested in placing assets offshore for a variety of legitimate reasons, including:
- The existence of a sophisticated infrastructure of financial institutions and professional service providers (lawyers, accountants, corporate services, etc).
- Lighter government regulation - though still robust and effective - in the region in which the bank is domiciled. This may allow for a relatively favourable investment environment as compared to onshore.
- Access to politically and economically stable jurisdictions. This may be an advantage for individuals who reside in politically unstable regions in which they cannot be confident as to the security of their assets.
- Tax neutral. Having no added local tax burden is a useful advantage for individuals who are not obligated to pay tax on worldwide income, or who may be able to defer taxation. It also allows individuals to structure their assets without having to worry about local tax complications.
- As part of estate and/or asset protection planning.
- Broader "global" view than often found with onshore institutions.
- Strong privacy and confidentiality laws to help protect depositor's privacy.
Note: It is strongly recommended that qualified legal and tax professionals in the customer's country of residence be consulted in advance of moving assets offshore.
Individuals with non-legitimate intentions may also seek to do business offshore, just as they do onshore, incorrectly assuming that their activities may be more likely to be overlooked or found acceptable. In fact, in most jurisdictions, the opposite is the case:
- Comprehensive anti-money laundering regulations require financial institutions to monitor their customer's activities and report any suspicions that they may be holding proceeds from criminal activity.
- "Know your client" regulations require that customers provide substantial information and documentation to verify identity of signatories and beneficial owners, including notarized passports, evidence of address, and references.
- Increasingly effective due diligence tools allow financial institutions to execute quick and thorough checks into prospective customers’ backgrounds.
- Cross border information sharing agreements provide a mechanism for authorities and regulators to exchange information for use in legitimate criminal, tax or regulatory investigations.