Offshore Investing: Types, Advantages and Legalities
Offshore investing mean placing one’s money outside of one’s country of residence. A person often uses offshore investing to protect assets from lawsuits, reduce taxes and/or diversify one’s investments.
If you haven’t already taken advantage of investing offshore, now is the time to give the idea serious consideration. In fact, this new era of technology makes it easy to take advantage of the financial diversity that offshore investing has always offered. Moreover, offshore investing comprises a significant portion of the international financial system.
Diversity decreases portfolio risk. That is, the investor can spread risk across not only international boundaries, but various asset classes and currencies. Now more than ever, it is wise not to put all of your eggs into one stock market basket.
Offshore Stock Brokerage Account
The frequent tumult in the stock market has many people concerned about their retirement accounts. On the contrary, offshore investing provides many new, stable, opportunities for retirement planning. So, your individual plans for this phase of life need not change. Another option includes setting up an LLC in which your IRA can invest. Because you control this LLC, you can make independent decisions without the permission of the custodian. In some cases, an offshore investment even allows the possibility of new residency. For example, this is true in Switzerland, Costa Rica and Panama if you have investments sufficient to support yourself.
The short-term economic picture may be uncertain. However, in the long-term, there are certain markets that do well and other markets that tend to fall behind. Offshore investing allow you to benefit from those economies that flourish while your domestic market is in the doldrums.
As stated above, an offshore investment is any investment or keeping of money outside of a person’s home country. For practical purposes, offshore investments take place in smaller nations that want to boost their economies through the capital provided by investors. Notably, the best-known offshore financial centers include:
- British Virgin Islands
- Cayman Islands
- Cook Islands
- Isle of Man
In most offshore jurisdictions, English is the native language and statutes are based on English common law. Furthermore, in some the standard currency is the U.S. dollar, while in others it is the British pound. In addition, restrictions are not usually placed on foreign exchanges.
Many of these countries run at or near Eastern Standard Time. As such, it makes contacting agents and brokers efficient for those on the U.S. Eastern Seaboard. They all feature state-of-the-art telecommunication. Most crucially, they have stable governments and political environments.
The regulations vary by country, but the investment structure is similar. An investor or group of investors form a corporation in the particular jurisdiction. Because they do not invest locally, taxes on the corporation are minimal or nonexistent.
Types of Offshore Investments
Offshore investments are not limited to placing funds in an offshore bank to protect them. There are plenty of offshore investment opportunities, especially in the realm of:
- Offshore mutual funds
- Forex Trading
- Precious metals
- Real estate
- Venture capitalism
As seasoned investors know, diversifying assets out of their home country helps spread risk over various types of investments. This is especially reassuring considering the current global economic situation.
Often, offshore investing gives investors the latitude to access industries and sectors unavailable domestically. One example of this is day trading. In particular, the US limits the number of trades a day trader can conduct in a period of time. Fortunately, there are offshore brokerages that do not impose such limitations.
Offshore Investment Advantages
Offshore investments offer many advantages, from favorable tax rates to extreme privacy. For instance, these countries do not levy inheritance, estate, or gift taxes. By and large, the names of the investors and their corporate entities do not appear in public records. This confidentiality is integral to protecting client interests.
Many individuals turn to offshore investments for asset protection. The truth is that no one knows when an event in their lives may trigger a potentially ruinous lawsuit. Those worried about lawsuits or creditors can shield certain assets by transferring their ownership to an offshore entity. This included entities such as offshore LLCs and offshore trusts for asset protection These locales make it as difficult as possible for a creditor to seize assets. In most cases, the statute of limitations for filing any claim of fraudulent conveyance by a creditor is just one year. The assets are protected right away. But after a year has passed, the foreign courts will refuse to hear a case challenging the transfer of your assets into the offshore trust.
Virtually all offshore jurisdictions require creditors to appear in their civil court and hire a local attorney. Most nations require the posting of a bond by the creditor, and if the plaintiff loses, it is responsible not only for its own legal fees but for that of the defendant. The burden of proof in some of these civil courts is “beyond a reasonable doubt,” which is the same as for criminal proceedings. It is the rare creditor who will attempt to pursue offshore assets after factoring in the complexities involved. They know they will almost certainly lose their case.
Estate Planning & Offshore Borrowing
Offshore jurisdictions do not permit forced heirship. That means assets are left to the individual or entity the owner wants them to go to. This is as opposed to the next of kin decreed by state or national statutes. This, and other factors, makes offshore investing an important consideration for estate planning as well.
U.S. companies can benefit from offshore borrowing, as credit is often less expensive.
The bottom line is that you can feel confident. That is, when placed in the proper entity, your offshore investments are safe from domestic legal wrangling. It is similar to taking out an insurance policy.
Offshore Investment Entities
The best advice we can give is this. Hold your offshore investment account in an offshore company and/or trust. Doing so will give you substantial privacy and asset protection from lawsuits.
Offshore jurisdictions offer a variety of investment entities for your needs. Set up some of them in 48 business hours or even less. The most common such structures include:
- Limited Liability Companies (LLCs)
- International Business Companies (IBCs)
There is often no minimum or a low minimum amount necessary to fund an offshore investment structure. The annual fees connected with their maintenance vary by jurisdiction, but are generally quite reasonable. Make sure you are aware of all fees and commissions involving your offshore entity.
Companies incorporated in offshore financial centers are not required to hold meetings in that particular country. Instead, any required meetings – and not all offshore jurisdictions require any meetings – can take place electronically or via the phone. Likewise, many countries do not mandate that the entity file any type of annual report.
Steps to establishing an offshore investment entity are straightforward. Licensed and registered agents are necessary for the application process. In most jurisdictions, corporations may require only one director and one shareholder. Some jurisdictions may mandate a local secretary or director. Your agent will go over the documentation required for the type of structure you are creating as per the specific offshore financial center. Once the documentation is submitted, the Registrar determines if all requirements are met.
Some investors may express concern about the safety of investing offshore. As with any other investment consideration, it is vital to conduct your due diligence. Our organization has done so for many years.
Many rich individuals and multi-national corporations have long been involved in investing offshore. Most offshore financial centers possess an excellent track record of providing solid investment opportunities. As with any project, only place your money in investments meeting your personal risk profile.
Working with a reputable broker or account manager is the best way to ensure that your investments are in good hands.
Offshore Stock Brokerage Account
Offshore stock brokerage accounts are similar to bank accounts. However, the former is managed by a private firm, while the latter is held by a bank. The brokerage account offers many of the same services as a bank, including wire transfers and money market funds. It does not serve the same purpose as a bank, though, so the trader should have a regular banking alternative for everyday transactions.
An offshore stock brokerage account allows an individual to trade stocks, options, futures and other vehicles. Moreover, the online trading platforms include the most sophisticated tools and features and are available 24/7. To keep the account separate from the individual per se, it is generally held under the name of the offshore investment structure, permitting additional privacy for the trader. All gains and revenue from the stock brokerage account are under the offshore structure’s name.
Using an offshore stock brokerage account differs little from a domestic account, except that it opens up a range of previously unavailable opportunities. These include:
- Access to investments not available domestically
- Additional tax benefits
- Ease of investing in offshore mutual funds
Less regulatory environment
- Various foreign currency options
Offshore Investing is Legal
It is perfectly legal to have an offshore investment account. In addition, investing offshore expands your investment options. For example, many well-performing unit trusts are not open to U.S. investors. However, this is not the case when using an offshore structure to invest.
One great advantage of an account located in an offshore jurisdiction is that the trader can reinvest capital gains without tax consequences; that is, inthe jurisdiction, itself. For instance, US people are taxed on worldwide income, so you still have to pay your US taxes if you are a citizen or resident. Furthermore, you can trade internationally yourself, or have a professional conduct your trades.
Expect to pay higher fees with an offshore stock brokerage account compared to a domestic account. Likewise, you may need to meet higher minimum investment standards. The minimum amount depends on the particular country in which the offshore brokerage is located.
Opening an offshore stock brokerage account involves deciding which location is best suited for the trader’s needs. Hence, when you call we will discuss the pros and cons of different jurisdictions, based on the client’s priorities. Keep in mind, you should expect least two weeks to pass between the initial application and the account approval.
If you want to establish an offshore investment account, contact us. If you like, you can fill out the free consultation form on this page. On the other hand, you can call us using one of the phone number on this page.
Last Updated on April 15, 2020