The entertainment and news media paint a dark and shady picture of offshore investing but this is far from a normal occurrence. Most offshore investments are perfectly legal and may offer advantages over national investment.
The simplicity of the term tells you that offshore investing takes place away from your country of residence. The purpose of investing out of country is to find financial advantages not offered at home. The advantages that come with offshore investment may include tax reduction, asset protection, confidentiality, and the opportunity for investment diversification.
Some countries offer tax incentives to encourage a healthy investment atmosphere that attracts financial resources from around the world. Corporations can be formed in foreign countries to shield investors from the higher taxes at home. These corporations are legally defined but do not operate locally in the foreign countries so have less tax liability. The Internal Revenue Service works to ensure that individual income taxes are now paid for worldwide income so you must be aware of tax rates and how they will impact your investments.
Offshore restructuring is a legal way for individuals concerned about lawsuits, liens or foreclosures to retain a portion of their assets. Trusts, foundations or existing corporations can accept ownership of assets. Through this transfer of ownership there are no longer assets to be seized from an individual. There are tax laws you must research and understand that apply to offshore restructuring.
Often there is secrecy legislation in offshore jurisdictions that can benefit you. Countries with legislation like this impose serious consequences for breaking these laws so banks and corporations are careful not to do so. These rules are overridden if there is evidence of illegal activity. Discretion is important investors who want to retain the lowest price possible when they are buying shares.
Investing outside your home country can allow investors to more fully diversify their stock portfolios. Access to international markets and major exchanges gives the investor more chances at diversification. Developing nations also provide investment opportunities that are leaving government control and becoming privatized.
While there are major advantages to investing offshore you cannot fail to take the disadvantages into account. Tax laws are changing and becoming more restrictive about offshore investing. Loopholes remain but the Internal Revenue Service is fully aware of offshore investments and began to collect income taxes on all out of country earnings by American citizens.
Offshore investment can be cost prohibitive. They often involve hiring legal experts to set up accounts or corporations. In addition to legal costs most accounts require minimum investments in the six and seven figures.
All investments offer a risk. If you have the financial resources to invest or the patience to find a smaller investment opportunity offshore investment can pay off.