Offshore explained

Tax Issues

Imagine you have two options to get home from work: drive across a toll bridge (pay the dollar and get home early) or a free bridge (located outside the city centre). If you went over the toll bridge without paying the toll, you would be violating the law. If, however, you drive the extra mile to the free bridge, you are legitimately saving money. The former, like tax evasion, is against the law. On the other hand, tax avoidance is the legal utilization of the tax regime to one’s own advantage in order to reduce the amount of tax by means that are within the law. Today few people know the free bridge even exists.

Financial Centres

Investing offshore means investing in a location other than one’s country of residence. Although accessible to anyone who can meet the minimum dollar amount, offshore investment is often stereotyped as attracting the extremely rich and dishonest. But the financial barrier to entry continues to fall, as more and more offshore banks are willing to open accounts with a minimum of US$1,000 in initial deposits. Also, offshore financial centres have recently improved their levels of safety and internal regulations relating to money laundering, terrorist financing, and tax evasion. Among the most reputable offshore financial centres are Singapore, Hong Kong, Liechtenstein, The Isle of Man, Guernsey, Jersey and all U.K. crown dependencies.

Offshore – what for?

There are several attractive offshore investment opportunities that are worth further investigation. For instance, most industrialized countries offer some form of tax concessions for individual retirement savings, but an offshore individual retirement savings plan does not restrict how much you can invest free of tax. Also, lump-sum investments in financial products are also non-taxable for capital gains and dividends. Family foundations, used for asset transmission from generation to generation, are also available. Such a set-up avoids claims from those you don’t wish to benefit from your wealth and more importantly, avoids your heirs paying inheritance tax upon your death.

Dangers

Countries like the U.S., Canada, U.K. and other E.U. nations have very specific laws and regulations concerning offshore financial activities. Navigating these issues requires the services of a trained professional. A web search will reveal hundreds of offshore service providers offering various offshore tax planning and asset protection schemes, as well as company creation services. But offshore investment advice is not a one solution fits all. Bad tax advice can have grave consequences. Select an advisor who understands your specific circumstances and future plans.

Written by Afonso Vieira, Managing Director of Total Wealth Management