So you have decided that offshore is the
way forward. The three most pressing concerns,
then, are what type of investment you feel
is right for you, where you choose to invest
or bank, and how involved you are prepared
to be in offshore life.
The
range of offshore investment and banking
options available to today's expatriate
can sometimes seem a little bewildering
to those not well-versed in finance, so
before we deal with the choice of jurisdiction,
here is a brief rundown of your options,
and the advantages and disadvantages of
each for an expatriate.
Offshore banking is worth considering whatever the length of your
expatriation or future plans, as in many jurisdictions you can ensure
that interest is paid out or added to the balance gross, and your
balance and transaction details will be subject to greater confidentiality
and protection. Even if you still have currency commitments at home
(for example mortgage payments), there may be no need to maintain
your account there to deal with these expenses, as most offshore
banks are well equipped to deal with every aspect of expatriate
money management, including remittances to your home country, and
by now most of them provide Internet banking services in any case.
It
is, however, worthwhile bearing in mind
the charges levied for different facilities,
for example credit and debit cards, cheque
books and electronic transfers. By the very
nature of offshore, these all involve your
money being transferred across the globe,
and how much this costs varies widely from
bank to bank. So think carefully about what
you want to be able to do with your money,
and if you decide that you really need extra
facilities, check who offers them at the
most reasonable price, and use them wisely,
otherwise the charges will mount up. If
you are going to maintain substantial balances
on your account, there may well be scope
for bargaining over charges. If you don't
ask, you don't get!
Offshore
fund investment is another option which
is especially suitable for expatriates,
as going offshore offers a much greater
variety of investment opportunities than
domestic investment funds, and many more
markets and providers can be accessed. The
different categories of offshore fund investment
require varying levels of commitment, openness
to risk, and capital, so whatever your circumstances,
you should be able to find something to
suit you. Investment in an offshore fund
also provides you with greater peace of
mind, as not only is the risk spread, but
the fund is likely to be managed by an expert
with specialised knowledge and up to the
minute resources. But stick to well-known
names, and never believe extravagant promises:
only if there is cast-iron evidence of superior
returns over a long period of time should
you consider any investment which seems
unexpectedly rewarding. If it seems to good
to be true, it is too good to be true!
Funds can be either open or closed-ended; open-ended funds can
include mutual funds, tracker funds and UCITS, and are usually listed
on stock exchanges, although the units are bought and sold via the
fund manager, and not traded as such, unless they are exchange-traded
funds, which have begun to make their way in some jurisdictions.
The Net Asset Value (NAV) per unit is calculated frequently, and
the information is readily available for the investor to act as
she sees fit. This type of fund is intended more for ordinary investors.
Closed-ended
funds, on the other hand, are more suited
to professional investors, as there is less
protection, and this being the case, they
are rarely (if ever) listed on stock exchanges,
as the degree of considered risk involved
would generally be in contravention of the
investor protection measures necessary for
publicly listed funds.
It is usual for investors in closed-ended funds to set up limited
partnerships, or limited liability companies for the purposes of
tax transparency, and to enable them to offset profits and losses.
Although the nature of closed-ended funds means that there is a
pre-agreed closing date at which profits will be distributed (and
as a result, this type of investment requires a greater degree of
commitment) matching and crossing services are now offered, meaning
that the needs of international investors in closed-end funds can
often be dovetailed, to their mutual advantage.
For a more detailed description of offshore
investment funds, please click
here to visit the Investorsoffshore
Guide to Alternative Investment.
Pensions Provision For
Expatriates
As an expatriate, you will doubtless be involved in a pension scheme
already, or at least be thinking about the issue of pension provision.
Although offshore pension planning can be more complicated than
domestic pensions arrangements, it can also (done right) be more
rewarding. The first question must always be about your existing
scheme: if you have a substantial investment in a tax-privileged
scheme in your home country, and if you are thinking about going
back there to retire, and if retirement is imminent, then it will
probably not pay to change existing arrangements. If on the other
hand you are quite young, and may not return to live in your home
country, then you may do better by setting up offshore arrangements,
and may be able to combine these with your existing pension assets
through (for UK domiciliaries) QROPS (Qualified Recognized Overseas
Pension Schemes) or their equivalent in other countries.
There
are different ways of approaching the provision
of offshore retirement income, but designated
pensions investment may at first seem the
most attractive to the bewildered expat.
Many
large and reputable organisations offer
reasonably flexible offshore pension plans
(which are basically investment schemes
structured within life policies, which can
grow tax-free offshore). This type of investment
can be attractive, as much of the work is
done for you, and there are sometimes other
benefits and incentives offered as part
of the package. However, although limited
flexibility is available, it can be costly
if your circumstances change dramatically,
as heavy front-end charges and cancellation
fees could negate any savings potential.
You might alternatively decide that you are more interested in
the DIY approach, and opt to make the decision about the mix of
investments yourself (although sound financial advice is a necessity
here, in order to maximise both security and capital growth in the
period before retirement). This is a cheaper option without a doubt,
as there are few (if any) administrative costs, and no penalties
for cancellation or withdrawal if your circumstances change. However,
it can be less of a 'safe bet', and you will need to consider the
tax consequences of a change in circumstances or relocation.
Offshore Trusts And Companies
And finally, if you are interested in streamlining your financial
management, or protecting your assets against possible future threat,
then an offshore trust or company may be of interest to you as an
expatriate. (It has been said before, but bears repeating, that
if you are attempting to protect your assets against imminent or
current attack, whether from the tax- man, creditors, or a litigious
ex-spouse - DON'T BOTHER! Trying to transfer assets offshore in
order to defraud is not only pointless, but is likely to get you
into untold trouble if you are caught out. Which you probably will
be. The time to transfer assets offshore is before you have problems,
not afterwards, and it can then be very effective, although nowadays
more for asset protection purposes than in order to save tax or
for confidentiality, which is no longer guaranteed after the long
campaign waged against it by the OECD and assorted major high-tax
countries such as the UK, the USA, Italy, France and Germany.)
In
terms of making financial management more
efficient, however, an offshore trust or
company, or a combination of the two, can
be very useful, in that all assets are essentially
'wrapped up' in one jurisdiction, cutting
down on administrative costs, and leaving
the expatriate free to acquire assets anywhere
in the world.
In
the case of an offshore trust, the settlor
(you) can be distanced from control and
ownership of assets, with the trustees 'owning'
and administrating the trust on behalf of
the beneficiaries (of which the settlor
can be one, if he so chooses). Although
for the purposes of transparency (and by
extension effectiveness as an asset protection
vehicle) the trustees must be seen to have
ultimate control, the settlor will usually
present them with a letter of wishes outlining
his desires and concerns for the trust.
It is therefore essential that there is
a good relationship between the settlor
and trustees, and that the persons chosen
to fill the role of trust managers are trustworthy
and reputable. In most jurisdictions there
are stringent laws governing the registration
of trust management companies and individuals.
An
offshore company is somewhat different,
in that transfer of ownership is less absolute,
as although the company will own the assets,
the transferor will still own shares in
that company. This being said, an offshore
company can still provide effective confidentiality,
as the company will be a separate legal
entity, with a separate name disassociated
from that of the individual. These vehicles
also carry limited liability status, which
means that there is no financial obligation
on the part of an offshore company shareholder.
It is worth bearing in mind, however, that offshore trusts and
companies are not cheap to set up and maintain, and the more complicated
a structure needs to be, the higher the annual management fees will
be. If you decide that this type of offshore vehicle is for you,
consider your jurisdiction very carefully, as the rules and legislation
regarding trusts and companies vary widely. Some jurisdictions do
not recognise trusts as such, but have established local variations
on the theme, and different IOFCs offer different company structures
and business formats.
Before setting up an offshore asset structure, you also need to
consider whether your country of residence has 'Controlled Foreign
Company' rules, which might bring the profits of such a company
under the income tax umbrella of your home country.
As
you can see, though, there are a variety
of banking, asset protection, and investment
options open to you, and the choice of jurisdiction
is intertwined with the choice of offshore
structure, which is intertwined with your
personal circumstances, obligations, and
preferences. So without further ado, onto
the tricky matter of choosing a jurisdiction!
The Choice Of Jurisdiction
In
terms of relocating offshore, this article
aims to provide assistance for expatriates
in a variety of situations. Although obviously,
your prime consideration is to find a secure
and profitable location for your assets
and income to be remitted to as you move
from country to country, you may also need
to consider other factors. You may choose
(or be obliged by your company) to work
and become temporarily resident offshore,
or you may have dreams of spending your
autumn years skiing, or soaking up the sun.
Whatever your situation, you need to make
sure that you choose an offshore jurisdiction
which fulfils all of your needs, and with
which you can, (if you so desire) maintain
a life-long relationship.
There are several basic points to be considered
when looking at jurisdictions (for whatever
reason), and briefly, these are:
- Political
and economic stability
- Any
changes on the horizon which may impact
on your investment either now, or in the
future. (The ongoing banking secrecy struggle
between the OECD/FATF and the offshore
world being a case in point.)
-
The professional support services and
financial infrastructure. Although in
order to stay in the running as an offshore
financial centre a jurisdiction will have
to maintain these at a reasonable standard,
some are better than others in terms of
providing support and additional services
to their investors.
-
The communications network. This is really
part and parcel of the above point - in
order to remain competitive, and build
a good business infrastructure, a jurisdiction
must necessarily maintain an adequate
communications network. However, as an
expat, Internet facilities, online banking
and portfolio management capabilities,
and possibly e-commerce developments may
be of especial interest to you. Have you
noticed how many (all?) jurisdictions
claim that within a few years, they will
be the most important e-commerce hub in
their region? Well, some are closer than
others to achieving this goal, and it
is worth keeping an eye on developments
prior to making your decision.
If your plans are to spend some time working in the jurisdiction
in which you settle your financial affairs, you will need to look
into areas such as residence regulations and taxation, cost of living,
and employment regulations. (i.e. is a work permit necessary? How
easy is it to get one? How long are you allowed to stay, and can
you bring your family with you?)
And
finally, if you would eventually like to
retire to your jurisdiction of choice, you
will have to consider nearly all of the
above points, but will also need to look
into the lifestyles, languages commonly
spoken and climate, leisure possibilities,
and retirement income options offered by
the various jurisdictions, in order to choose
the one which best suits you and your family.
But
don't panic! This special feature addresses
all of these aspects of offshore living,
banking and investment for 20 of the major
jurisdictions.Click on the flags below to
find out more about each country!
Offshore jurisdictions come in all shapes and sizes, and the standard
of living, investment options, and professional support vary enormously.
However, we hope that this article has clarified at least some of
the areas of concern for you, and possibly helped you to decide
where to go, and what to do when you get there!
The second
part of this feature deals in more depth with the characteristics
of offshore investment vehicles and the mechanics that are involved
in making investments, including the due diligence you need to do
to safeguard yourself against scams and fraud.
For a comprehensive treatment of offshore legal and tax regimes
in over 30 offshore jurisdictions, please
visit the Lowtax
Jurisdictions Guide.
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