IMPORTANT WARNING: The contents of this report have been compiled in good faith by Investorsoffshore.com to provide assistance to investors, but do not constitute investment advice or recommendations. Investors should not rely upon the information given in order to choose types or routes of investment but should make their own independent enquiries before making choices. Investorsoffshore.com has taken reasonable care in researching and presenting the information herein but makes no representations as to its accuracy and accepts no liability for actions taken or not taken as a result.

Whether you are still in the planning stages of expatriation, or have already made the move overseas, it is worth considering the benefits that offshore banking and investment could hold for you in what is, after all, a financially advantageous position. Continuing globalisation, and the increased use of electronic banking have meant that for you as an expatriate, a multitude of opportunities have opened up which would not have been available a few years ago - now the world is quite literally your oyster!

For most expats, offshore banking and investment offers opportunities for greater tax efficiency, confidentiality, and the ability to take advantage of an international investing perspective, free of the petty restrictions that often apply in high-tax countries.

These freedoms do of course depend on your residential status and the tax rules in your home country. For most expats a period of non-residence will be just what the bank manager ordered; but for some nationalities, US citizens for instance, mere expatriation isn't enough to escape home taxes.

Offshore Banking

In most offshore jurisdictions, interest earned on bank deposits is free of tax for non-residents. Also of great importance from an expat point of view is the convenience factor associated with offshore, for example the ability to receive and deposit funds remitted from your home country, or income earned from working overseas (for example fees, salary and expenses), in sterling, US dollars, or any one of a number of hard currencies.

Many offshore banks offer a range of services and options, including:

Setting up an offshore bank account or investment portfolio should prove to be no problem once you have decided on the location and type of account. There is generally a minimum amount for offshore deposit accounts, and due to recent legislation designed to prevent money laundering, identification is usually required, despite the claims of some shady service providers to offer 'fully anonymous' offshore banking. Once the account has been established, and if you are depositing a significant sum, a relationship manager will usually be assigned to advise and assist you in the management of your assets.

You will almost certainly need to open a bank account in your country of residence for day to day transactions. If you are spending most of your time there, you will probably have to pay taxes on income paid locally, so it will often be best to have as much as possible of your income paid directly into your offshore account in hard currency. This incidentally protects you against any large fluctuations in the value of the local currency.

One note of caution however: the trend towards greater regulation of financial services in the post-Lehman Brothers era has placed greater onus on offshore account holders and banks to report information to the client's home jurisdiction for tax purposes. This is especially the case for US citizens who must comply with America's Report of Foreign Bank and Financial Accounts (more commonly known as FBAR) rules and the incoming Foreign Account Tax Compliance Act (FATCA). In addition, the European Savings Tax Directive may have implications for European expats.

Such tax reporting rules are complex and there isn't the space in this brief primer for a detailed exposition of the tax implications for expats banking offshore, but it is obviously wide to stay cognizant of the situation.

Offshore Investment

Offshore banking is, of course, not the only option available to you; depending on your situation, financial status, and degree of openness to risk, there are a variety of offshore investment options open to you as well. Funds are the most straightforward and readily available option. These range in risk from low yielding bond funds to highly-geared hedge funds, so there is something for everyone.

Fund investment is especially suitable for the busy expat, because you can choose to invest in a certain class of assets without having to examine the characteristics of individual assets in detail. The tax efficiency of offshore funds often means that they have higher yields than equivalent onshore funds, so it may pay you to transfer existing onshore assets into offshore funds, although you have to be careful about the costs of transfer, and especially capital gains tax. You also have to consider what may happen when, and if, you go back.

As is the case onshore, there are two different types of investment fund available:

Private funds. Suitable for those expats with a longer term investment horizon, and more capital (usually not less than $1,000,000, although individual investments may be as little as $50,000). These are usually closed-end funds, involving up to 50 investors, and often generate greater returns than public funds. Quite often they would use a structure known as a Limited Partnership which allows residents of higher-taxed countries (eg the US) to repatriate profits to offset against losses or expenses at home. This might be a suitable structure depending on your long-term plans.

Public funds. These are usually open-ended, i.e. you can sell out at any time, which gives investors more flexibility. More and more public funds are based in offshore jurisdictions even though their investment targets may be in high-tax areas. If they have invested in capital assets (eg capital growth funds or real estate) then gains will be tax-free. As is the case onshore, there is a wide range of portfolio management tools available from offshore fund management groups.

Offshore equity investment is another rapidly developing investment sector, which may also be of interest to you as an expatriate. Equity investment used to mean investing in securities listed on your local stock exchange to the exclusion of foreign stocks, but of recent years, all this has changed. There is a growing number of stocks that are listed offshore - dividends and capital gains will of course be tax-free and they can be bought through local brokerages. As long as you have a satisfactory non-resident tax situation, you can also buy onshore equities without risking capital gains tax, but you will find that dividends have usually been subject to withholding tax, which you may not be able to reclaim.

This is an area in which the Internet has opened up new possibilities for investors, as online brokerages and some investment sites and exchanges allow you to manage your portfolio quickly and easily wherever you are in the world. The physical barriers to international investing of a few years ago simply do not exist for today's expatriate investors. Expatriate investment is therefore not limited to funds and equities, but can also include other types of onshore investment activity such as derivatives trading (futures and options), and their cousins spread-betting and contracts for differences. Exchanged-traded funds, or ETFs, have also become very popular in a past five years or so as they allow investors to buy and sell a basket of securities like equities and bonds at much lower transaction and tax costs. But it must be said that risk doesn't diminish with distance: arguably, if you are away from a particular market-place, with even the best on-line information sources you are somehow missing knowledge you might have had if you were present. These more exotic types of investment are not for the faint-hearted!

Pensions Investment

Whilst you are thinking about offshore investment, it may be worth giving some thought to your pension. Although pensions investment is usually tax-privileged in high-tax countries, as an expat, you face additional problems, namely that while non-resident, you will probably not be able to continue taking advantage of the tax incentives 'at home', even if you want to retire there.

Pensions investment is a tricky area for expatriates, and more than ever you will need to consult with an independent professional. However, you can consider your basic options prior to doing so, and these will depend greatly on the circumstances surrounding your expatriation.

If you are employed by a company in your home country (and are part of an in-house pension scheme), and you are moving abroad to work for that same company, then in some countries you may be able to continue contributing to that plan; in the UK for instance you can continue to contribute for a maximum of 10 years.

If you are moving abroad to work for a company with no ties to your home country, then you may be allowed to join their local pension scheme. Only in a few cases will you be able to transfer the pension rights back to your country of residence when you return, unless you continue to work for the same company; and usually the terms of transfer are highly unattractive.

If you have been contributing to a personal pension scheme, however, the news is usually worse, as in certain countries, for example the UK, you are only allowed to contribute to your pension plan for as long as you are taxable there.

The right decision will obviously depend on your personal circumstances. If however you are going abroad for an extended period, and especially if there is a good chance that you will retire to some other part of the world, there may be an argument for transferring your home pension assets offshore straightaway, even though that may (probably will) entail a tax penalty if your contributions have been tax-privileged. On the other hand, the tax penalty of transfer taken together with the exit penalty from your scheme may combine to make a transfer very costly. If you are lucky, you may find that your pensions provider has an offshore branch, and you may be able to induce them to make the transfer on favourable terms in order to keep your business.

Whatever you decide to do about your existing pensions arrangements, once you have established non-residence (and non-tax-paying) in your home country, you will have many options open to you to make retirement provision offshore, in order to take advantage of the peace of mind of knowing that your assets are secure however your circumstances change, and the greater flexibility over retirement date, payments, etc, which could be so important to you as an expat.

These options can't be examined in this brief primer; however, there are two broad categories of pensions provision to choose between:

Designated pension or retirement schemes. There are many of these available now, and they usually accept payment in a wider range of currencies, and generally require less maintenance on your part. However, they do require a longer term commitment (not ideal if your personal circumstances are uncertain), and the penalties for early withdrawal can be punitive. Although they may appear to offer less generous rates of return than on-shore schemes, remember that this is because they don't assume tax relief on contributions. Instead, you will receive the benefits tax-free if you remain offshore.

The DIY approach. You can opt for a more diverse portfolio made up of different types of investment. This is obviously less of a safe bet, but it does mean that you can retain greater control over your assets, and there are no penalties should you need to withdraw for any reason.

Offshore companies

If you are going to work in a country which wants to tax your world-wide income, or are going to return to your home country to a world-wide taxation regime, then you may want to consider establishing an offshore company.

This is another complex area in which professional help is needed, but the interpolation of a company can sometimes distance you from your income sufficiently to avoid taxation. In some countries there are plenty of rules to prevent this; but not in all, by any means.

The following may be of especial interest if you are providing a personal service (for example in the finance or engineering industry), or if you have a substantial investment portfolio:

There are, of course, many other types of offshore company that can be formed to deal with the needs of large corporations, or expats with very specific needs, i.e. globetrotting entertainers or sportsmen.

Offshore Trusts

An offshore trust can be set up by an expat to serve the same basic purposes as an offshore company, namely confidentiality, tax minimisation, asset protection, and estate planning.

The principal difference between the two structures is that with an offshore company, ownership is maintained, whereas with an offshore trust, ownership is transferred. This has the effect of creating more distance between you and your wealth, so that it's harder for creditors, the taxman or your ex-spouse to get at it!

Trusts used to be primarily aimed at tax avoidance, but in recent years the tax authorities in many high-tax countries have passed 'anti-avoidance' legislation that lets them attack trust assets while you are alive, although they are still effective against inheritance taxes. Trust assets won't be taken into account during the probate process, so that the death of the settlor does not affect the administration of the trust, which still remains under the custodianship of the trustees. This also allows a settlor to maintain confidentiality over the size of the estate, and avoid the delays and possible publicity which would come as the result of a lengthy probate procedure, not to mention the saving on inheritance tax.

Trust assets will remain in the trust for as long as the original Trust Deed prescribed (in perpetuity, if necessary, or for lesser periods), or until the terms of the trust permit or require the Trustees to distribute them.

Another area in which the use of trusts is growing is asset protection, so if you have a fairly substantial liquid net worth that you would like to protect, before, during, and after your expatriation, an offshore trust may be the way to go.

A basic trust structure consists of three entities; the settlor, who sets up the trust, the trustee, who acts as custodian, and the beneficiary/ies, who can receive income from it.

Trusts originated in England, and most of the ex-British offshore islands have trust legislation. Civil law countries on the other hand tend not to have trust laws, although some of them have copied the concept of a trust in order to compete effectively.

However, Foundations are becoming an increasingly popular alternative to the traditional common law trust, especially for investors originating from civil law jurisdictions where trusts are an unfamiliar concept.

Unlike a common law trust, a foundation is a legal entity more akin to a company and as such, it is usually entered onto the Companies registry in the jurisdiction concerned. The assets in a trust tend to be managed according to contractual rather than fiduciary principles, although foundations are used for much the same purpose as a trust - ie for asset protection and succession planning.

Foundations are formed by a founder who provides the initial assets of the foundation, otherwise known as the endowment. Whereas trust assets are held by a trustee, a foundation has a council which acts much like a company board and which is responsible for fulfilling the purpose of the foundation, although there are no shareholders. Beneficiaries have contractual rights to enforce the operation of the foundation in accordance with its constitutive document – rather than proprietorial rights in its assets.

Spotting an opportunity to tap into the increasingly lucrative wealth management markets of Asia, Latin America and other emerging economies, some common law jurisdictions have recently introduced legislation allowing for the formation of foundations, including the Bahamas, Jersey and the Isle of Man, while Guernsey is expected to finalize foundations legislation during 2012.

Choosing Your Jurisdiction

There are several factors to consider when choosing an offshore jurisdiction from which to bank, invest, or trade as an expatriate. The following are areas that you will need to look at in order to make a considered and profitable decision:

Political and economic stability. This is a basic, but important concern.

Legislature. The situation with regard to banking secrecy, for example, is undergoing changes at present, and it is worth keeping abreast of any issues which may impact on your investment, before, during, and after expatriation.

Professional infrastructure. This will need to be up to a good standard, in order for you to receive the support and services that you require, so you will need to check the banking, professional and advisory services available, whether the jurisdiction is well equipped to deal with the particular offshore structure that you wish to set up, and the general standard of the business infrastructure in the jurisdiction. For a comprehensive guide to the relative strengths and weaknesses of jurisdictions, and contact details for service providers in each, please click here to visit the Lowtax jurisdictions guide.

Communications network. This is an obvious concern, but needs addressing. As an expat, you will presumably not be resident in the offshore jurisdiction itself, and may be moving around on a regular basis. You therefore need to check that effective communication between yourself and your advisor, bank, or custodian will always be possible (and preferably that you all speak the same language with at least a reasonable degree of proficiency!)

Geographical location. This needs looking at carefully, as it is of especial concern to expatriates. Assuming that your expatriation is of fixed duration, you do not want to have to move your money from jurisdiction to jurisdiction as you move around, or repatriate. The idea of investing it offshore is that it is safe, and easily accessible from anywhere in the world, in keeping with your global lifestyle. It is therefore important that you consider the time zone in which your offshore structure is based. For example, an expatriate based in Australia would find a relationship with a Hong Kong bank very easy to maintain, but an offshore structure established in Jersey or Ireland virtually inaccessible, during normal business hours at least. Online banking makes this a little less of a concern, but it still needs to be looked at.

As you can see, even from this basic guide, the offshore options for you as an expatriate are many and varied, and there is something for any situation and pocket. However, it is always advisable to seek one-to-one financial advice before making a decision about the type of investment that is right for you.