Investmnent & Taxation
might an offshore investment be superior
to an onshore investment?
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,
can benfit from offshore investment?
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
much money do I need to invest offshore?
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
I use more than one offshore centre?
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.
it easy to dissolve an offshore fund structure?
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.
is a trust?
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
is an asset protection trust?
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.
are investments regulated more than other
types of purchase?
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.
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
it legal for me to make offshore investments?
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.
is meant by the terms 'domicile' and 'resident'?
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.
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.
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.
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