Offshore Investment Truth
Offshore investments have access to the widest possible variety of investment instruments and may often pursue more aggressive investment strategies than if they were registered in a “traditional” jurisdiction. (These Funds out-perform U.S. Funds in Asia and South America).
[box type=”tick” size=”large” style=”rounded” border=”full”]A series of offshore investment funds, designed under the same pattern, and having the same recognized managers and administrators, may be created extremely quickly and with minimum cost. As a result, an offshore investment fund can be offered to potential investors at more attractive financial terms.[/box]
It is also quite common for an offshore investment vehicle to outsource some or all of its support functions to outside providers, either in the same jurisdiction or abroad at lower cost than in the home jurisdiction. Thus, such flexibility and variety of choices quite simply ensures a more efficient and profitable running of the investment instrument.
Segregate & Diversify
Most of us know about the benefits of holding uncorrelated assets in an investment portfolio to reduce overall risk. In a similar fashion, you can reduce your political risk-the risk that comes from governments. You do this by spreading across politically uncorrelated countries to obtain the most diversification of benefits. The optimal outcome is to totally eliminate your dependence on any one country.
Offshore Investment Myths
Offshore Investment Myth No. 1
There is no economic advantage to deferring income. Whether you get paid now or later, you end up with the same amount of money (That statement is a Myth).
a) when you invest pre-tax, tax deferred, your income grows at the pre-tax rate of return, rather than the after-tax rate.
b) by deferring, you have the opportunity to reduce your effective tax rate.
Offshore Investment Myth No. 2
Deferrals must be structured as a fixed annuity. (That statement is a Myth)
a) Non-Qualified Deferred Compensation (NQDC) is subject to its own tax rules, namely the constructive receipt and economic benefit doctrines.
Offshore Investment Myth No. 3
Concluding that capital gain assets should not be placed in tax deferred accounts because they will be subject to ordinary income taxation on withdrawal is erroneous. (That statement is a Myth)
a) The key role of exempt from income compensation is not always appreciated
b) a capital gains strategy is based on an illusion of the IRS current view of what is or is not a capital gain.
Offshore Investment Myth No. 4
Accounting rules follow tax law (That statement is a Myth)
2) You can’t change the legal quality of capital. Capital arises in two ways:
a) capital injection; which for U.S. tax law terms is completely useless or the other way is the much more common way is
b) from income accruing and it is accruing in such a way that it is being accumulated and the trustee takes a decision to capitalize that income and adds it to the capital base.
Photo credit: Nya Alchemi via VisualHunt / CC BY-SA
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