The Benefits of Offshore Investments

Summary: A look at the main benefits available to those who invest offshore such as taxation deferral or reduction

It’s really very tricky to categorically state on a general basis what the benefits of offshore investments are to you, our readers – this is because you all come from such a broad range of nations!  A benefit of investing offshore to one reader might be a headache for another reader or a potential advantage for someone in country A might be a totally impossible gain to achieve for someone in country B!

Because of this very reason we always, always advise an individual to seek personalised professional financial advice before making any decision affecting their current and long term financial situation…but in this article we’re going to lay out the most popular and likely benefits of offshore investments for the majority of you so that you can explore your own situation with your adviser with these potential advantages in mind.

1) Tax deferral – some offshore bank accounts and a number of offshore savings and investment funds are set up in such a way that they don’t deduct tax on interest paid until the money invested by the onshore client is returned to their particular country of domicile and tax residence.

This tax deferral benefit is one particularly utilised by UK based offshore investors and an example of how and why it may be a benefit is as follows – say for example someone investing today who is a higher rate tax payer is actually approaching retirement and in retirement they will pay a lower income tax rate, they could defer their tax payment on interest earned until they become a basic rate tax payer.

2) Accessing alternative currencies – it is possible to save and invest offshore in accounts or schemes and policies denominated in alternative currencies which can provide those who live in a nation with an unstable currency greater security, or those who like to ‘bet’ on a given currency’ movement access to policies in their favoured alternative currencies.

3) Complex investment structures – certain investors need or desire access to more complicated investment structures which are possible to create in certain offshore jurisdictions where regulations are less strict than others.  Such a benefit is mainly desirable to professional investors.

4) Spousal tax reduction - an onshore domiciled individual married to a non-domiciled individual may benefit from transferring their assets into the name of their non-domiciled spouse and then retaining these assets offshore as, depending on the jurisdiction in question in which both parties are residing, there may be no disclosure or taxation obligations on the non-domiciled spouse. 

This is a complex one though because sometimes the non-domiciled spouse’s situation changes upon marriage so advice must be taken…don’t assume this benefit applies to you!

5) Expatriate advantages – expats who move overseas and reside in a nation in which they are no longer considered domiciled may, depending on the tax rules of the new country and the double taxation agreements in place with their country of domicile, be able to hold investments offshore and legitimately avoid any taxation on income and interest derived from the investment as long as that money is not brought into their new country of residence.

6) Diversification – there’s no denying it, there is an incredible array of investment options available to those willing to explore the offshore world.  Some are more attractive and secure than others of course, but if you’re a professional investor and you’re seeking greater diversification, you may benefit from investing offshore.

7) Regulation, supervision and compensation schemes – certain offshore jurisdictions like the Isle of Man have even better investment regulation in place than onshore centers like the UK!  Other jurisdictions have sophisticated levels of supervision in place as well as investor protection in the form of compensation schemes making them very attractive places to invest for those who require greater security.  Other offshore jurisdictions are lightly regulated and hardly supervised and these can of course be attractive to a different sort of investor! 

Look at any offshore jurisdiction you’re considering placing funds in in relation to their rules of regulation, supervision and investor compensation in light of your own personal objectives.

8) Fund managers & investment specialists – certain specialist fund managers and expert investment companies or individuals may reside and operate from a jurisdiction other than the one in which you reside – to have access to their specialist skills you may have to go offshore.

As stated, these are general benefits of offshore investments – they are not necessarily of advantage to you and so you need to seek personalised and professional advice to see how and why you can potentially give your savings and finances a boost by going offshore.

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