The Pros and Cons of Offshore Investment
Offshore Investment has grown in popularity over recent years and has become a great source of investment for a large number of different investors. However, offshore investment opportunities are not for everyone. If you have a financial planner, please seek advice before making a new investment move and always consider the pros and cons of such investment.
It’s no secret that offshore investing can help with relieving tax. This leads to a legals and moral question regarding tax avoidance and tax evasion. That is why this topic is so controversial.
However, there are other possible advantages to investing offshore. For example, it could even be safer than investing domestically.
Read on for both the advantages and disadvantages to bear in mind.
Offshore Investment: The Pros
This type of investment opportunity has become quite common with a number of investors over the years and with the reduced tax benefits, it’s easy to see why. Offshore companies can offer much more advantageous tax conditions giving you a lucrative reason to advance.
Other advantages of offshore investing include:
- Low regulatory environments – a wider range of investment opportunities may become available when there are lower levels of regulation. Hedge funds for instance can flourish in such environments.
- Tax advantages – as previously mentioned, there are many tax advantages to choosing offshore investing options.
- Confidentially with your investment – many offshore firms can provide complete privacy to ensure that you financial information will not be made available to anyone else.
- Asset diversity – investing in foreign markets can help you diversify your assets. This can help you preserve your portfolio even in an economical downturn.
Offshore Investment: The Cons
Although foreign investment opportunities can be extremely lucrative, always consider the cons before advancing.
Here are some of the potential disadvantages to keep in mind:
- High risk – there is increased risk that financial markets are not correctly regulated, which can increase the chance of subsequent recessions and potential loss of investments.
- Not as safe as domestic investment – there are increased tax advantages with offshore investments. However, it is not always as safe as investing domestically. If you are investing overseas, ensure that you invest in a country with the right regulations.
- Tax competition – offshore investment can encourage unfair tax competition, which ultimately impacts on the economy as a whole.
- Reduced transparency – the reduction in transparency can sometimes give a helping hand to those looking to carry out illegal activities.
Offshore Investment: Conclusion
If you want to find out more about offshore investment, you absolutely need to speak to a professional and experienced financial planner. Don’t take advice from any old Jim or Jack who promises you that you can get rich by investing offshore!
For example, in London, Sanlam Private Investments (supporters of the Saracens rugby club) are well known for this type of investment advice. You can check them out by visiting this website.
Or, for more general news on offshore activity, Investment Week can be a fantastic and helpful resource.
When filing taxes in the States, they ask if you have any foreign investments. Unfortunate. I’m looking into ways to become possibly a tax-exempt citizen. I have a lot of research to do yet.
Zee @ Work To Not Work says
For some reason I always think of offshore investing as something that you need to be a millionaire to do… I guess that’s what you get for watching too many movies and seeing rich politicians get in trouble for those things.
I had never really thought about it seriously before but I may look into this more.
Many people have foreign investments – they have real estate, businesses or bank accounts in countries they have lived in or have close ties to.
Globalization makes holding assets and investments outside your country of citizenship much easier and more common.
But, the off-shore tax haven, which was always for the very wealthy and well connected, is pretty much gone now. FATCA requires institutions worldwide to report US citizen’s transactions to the IRS — I’m sure other developed countries have or soon will have, similar requirements.
So you can’t hide money in compliant institutions and, non-compliant places are very high risk – probably not worth the illusionary rewards!
And, IMO, the further you stay from legal trouble the better your lifestyle.
Invest abroad, of course. But invest for diversification and opportunities not to avoid taxes or hide your assets.
Unfortunately, David, there is no such thing as a “tax exempt citizen” in the US. You are either a US citizen subject to tax or not. You can exempt a certain amount of income by living overseas but not necessarily all of it.
The benefit to US residents investing overseas is as mentioned here; the ability to get out from some of the silly rules US investments must follow. In fact, on a global scale, US mutual funds are some of the poorest performers when taken as a whole.