Offshore Investing: An Overview

Offshore investing refers to a wide range of investment strategies that capitalize on advantages offered outside of an investor’s home country. There is no shortage of investment opportunities offered by reputable offshore companies that are fiscally sound, time-tested, and, most importantly, legal.

Depending on your situation, offshore investing may offer you many advantages including tax benefits, asset protection, and privacy. Disadvantages include increasing regulatory scrutiny on a global scale and high costs associated with offshore accounts.

Pros of Offshore Investing

There are several reasons why people invest offshore:

Many countries (known as tax havens) offer tax incentives to foreign investors. The favorable tax rates in an offshore country are designed to promote a healthy investment environment that attracts outside wealth. For a tiny country with very few resources and a small population, attracting investors can dramatically increase economic activity.

Simply put, offshore investment occurs when offshore investors form a corporation in a foreign country. The corporation acts as a shell for the investors’ accounts, shielding them from the higher tax burden that would be incurred in their home country. Because the corporation does not engage in local operations, little or no tax is imposed on it. Many foreign companies also enjoy tax-exempt status when they invest in U.S. markets. As such, making investments through foreign corporations can hold a distinct advantage over making investments as an individual.

Offshore centers are popular locations for restructuring ownership of assets. Through trusts, foundations, or an existing corporation, individual wealth ownership can be transferred. Many individuals who are concerned about lawsuits, foreclosing lenders, or creditors collecting on outstanding debts elect to transfer a portion of their assets from their personal estates to an entity that holds it outside of their home country.

By making these on-paper ownership transfers, individuals are no longer susceptible to seizure or other domestic troubles.

Confidentiality 

Many offshore jurisdictions offer the complementary benefit of secrecy legislation. These countries have enacted laws establishing strict corporate and banking confidentiality. If this confidentiality is breached, there are serious consequences for the offending party. An example of a breach of banking confidentiality is divulging customer identities. Disclosing shareholders is a breach of corporate confidentiality in some jurisdictions.

However, this secrecy doesn’t mean that offshore investors are criminals with something to hide. It’s also important to note that offshore laws will allow identity disclosure in clear instances of drug trafficking, money laundering, or other illegal activities. From the point of view of a high-profile investor, however, keeping the information, such as the investor’s identity, secret while accumulating shares or cryptocurrency can offer that investor a significant financial (and legal) advantage. High-profile investors don’t like the public at large knowing what stocks or cryptocurrencies they’re investing in. Multimillionaire investors don’t want a bunch of little fish buying the same stocks that they have targeted for large-volume share purchases. The small fry runs up the prices.

Because nations are not required to accept the laws of a foreign government, offshore jurisdictions are, in most cases, immune to the laws that may apply where the investor resides. Domestic courts can assert jurisdiction over any assets that are located within their own borders. Therefore, it is prudent to be sure that the assets an investor is attempting to protect not be held physically in their  home.

Diversification of Investments

In some countries, regulations restrict the international investment opportunities of citizens. Many investors feel that such restriction hinders the establishment of a truly diversified investment portfolio. Offshore accounts are much more flexible, giving investors unlimited access to international markets and to all major exchanges.