Why might an offshore investment be superior to an onshore investment?

The first answer, is, because it is often more lightly regulated, meaning that the behaviour of the offshore investment provider, whether he be a banker, fund manager, trustee or stock-broker, is freer than it could be in a more regulated environment. Any regulator in a high-tax country will immediately say, oh, of course, if it's unregulated, then it is riskier. Well, they would say that, wouldn't they?

Who can benfit from offshore investment?

Anyone can benefit from the greater returns to be derived from offshore investments simply by choosing to invest offshore rather than onshore. But to benefit from the low individual taxation regimes available offshore, one of two things has to be true: either the individual must have residence offshore, or, for a resident in a high-tax area, there must be an offshore structure which (legally) distances offshore gains from the onshore tax net.

How much money do I need to invest offshore?

There is no absolute low limit, but the extra costs of taking advice, opening new bank acocunts, phone communication at a distance, etc, etc mean that offshore investment is unlikely to be worthwhile for less than say $25,000. Still, costs are coming down all the time because of the Internet. Offshore banks will take deposits down to $1,000, but for a personalised 'private banking' service, you will need to deposit $100,000 or more.

Should I use more than one offshore centre?

Different jurisdictions have different advantages. Depending on your agenda, you may find it useful to use two, three, four, or even five different jurisdictions in your offshore structure. Using two or three jurisdictions in an average offshore structure is very common for substantial offshore investors - one for the corporations, one for the trust, and one for the bank account. This three-level arrangement allows your offshore structure to take advantage of the best laws of each country and provides the maximum level of privacy.

Is it easy to dissolve an offshore fund structure?

Most offshore structures can be revoked or dissolved very easily. Either the corporate documents or the offshore jurisdiction's corporate or trust laws should specify the dissolution procedure. Dissolving a trust usually costs no more than a small filing fee or a few hours of a lawyer's time. If it would be costly to dissolve a given structure, you can simply remove all the assets from the structure, so it has zero value. You can then leave the empty structure to be stricken from the jurisdiction's register - a cost-effective way to eliminate it. Obviously it would be wise to check dissolution procedures before entering into any offshore engagements.

What is a trust?

A trust works by taking assets out of the ownership of the person establishing ('settling') the trust and putting them into the hands of a trustee. An offshore trust is simply one based in an offshore jurisdiction and its profits are usually not taxable there. The trustee normally follows the wishes of the settlor. Trusts, which are based in 600-year old English common law, have been in common use for offshore asset protection for nearly 100 years. Unfortunately, the high-tax countries have therefore had plenty of time to defend themselves against trusts, and by now their usefulness has been severely compromised for the residents of many high-tax countries.

What is an asset protection trust?

A trust designed to accomplish a number of estate planning goals of its settlor, before and after death, including planning for the preservation of the settlor's estate from a variety of risks which would threaten to dissipate the estate if one or more of the risks materialised. An APT is typically established in a jurisdiction other than the settlor's home country.

Why are investments regulated more than other types of purchase?

Regulation covers the avoidance of fraud (to protect investors from their own ignorance or cupidity), the avoidance of money-laundering (nothing to do with bona fide investors) and has prudential aspects, ie it tries to prevent investment managers from making risky investments that could lead to loss for investors. Regulators believe that people's savings are so important they must be given special protection.

What is money-laundering?

The conversion of 'illegal' money into 'legal' money. Thus, a drug-runner who walks into a Caribbean bank with $1m, opens an account, and the next day transfers the money into a Swiss bank account where he invests it into Nestle shares has 'laundered' the money successfully. Nowadays banks are much more careful about accepting large sums of unaccountable cash.

Is it legal for me to make offshore investments?

This depends first on where you live. Many countries, including the US, Canada, the UK, France and some other EU countries, make it illegal for offshore investment providers to advertise their products domestically. Despite this, generally speaking it is not illegal for you to make offshore investments (although the US is particularly restrictive). You must check carefully with local advisers as to your rights. It is illegal in almost all jurisdictions for you not to declare the income or gains from offshore investments to your local tax authorities, and in those very few countries with remaining capital controls, to the monetary authority.

What is meant by the terms 'domicile' and 'resident'?

Domicile' normally relates to the country or state which an individual regards as their permanent/ultimate home location. A person's domicile is established at birth and this remains until an individual resettles with the firm intention of remaining in that new location.

'Residence' is normally determined by an individual's status at a particular time. The rules vary from country to country, but in many cases presence in a country for more than 183 days in any one year is enough to constitute residence for tax purposes.

What is withholding tax?

When a dividend (or royalties or interest) is paid internationally, the country from which the payment is made usually taxes the payment as it leaves, by 'withholding' a proportion of it, usually between 10% and 30%. If there is a double tax treaty between the two countries concerned, it is often possible to reduce the tax, or to reclaim some or all of the money. Some receiving countries allow the withheld tax to be set off against domestic tax liabilities.

What is a double taxation treaty?

An agreement between two countries intended to relieve persons who would otherwise be subject to tax in both countries from being taxed twice in respect of the same transactions or events. By and large, most offshore jurisdictions have traditionally not had double taxation treaties, since they don't have much local taxation. Offshore jurisdictions which do have double tax treaties usually cannot use them to benefit investors receiving complete local tax exemption.