Offshore investing refers to a wide range of investment opportunities that exist outside one’s home country. It is common thought that such strategies strengthen ones portfolio, however the main pros and cons may be listed as follows;
Advantages
Tax Reduction: Many countries offer tax incentives to foreign investors. The favourable tax rates in an offshore country are designed to promote a healthy investment environment that attracts outside wealth. For a tiny country, like Malta; with very few resources and a small population, attracting investors can dramatically increase economic activity.
Simply put, offshore investment occurs when offshore investors form a corporation in a foreign country. The corporation acts as a shell for the investors' accounts, shielding them from the higher tax burden that would be incurred in their home country. Because the corporation does not engage in local operations, little or no tax is imposed on the offshore corporation.
Asset Protection: Offshore centres are popular locations for restructuring ownership of assets. Through trusts, foundations or through an existing corporation individual wealth ownership can be transferred from people to other legal entities.
Many individuals who are concerned about lawsuits, or lenders foreclosing on outstanding debts elect to transfer a portion of their assets from their personal estates to an entity that holds it outside of their home country. By making these on-paper ownership transfers, individuals are no longer susceptible to seizure or other domestic troubles.
Diversification of Investment: In some countries, regulations restrict the international investment opportunities of citizens. Many investors feel that such restriction hinders the establishment of a truly diversified investment portfolio. Furthermore, offshore accounts are much more flexible, giving investor’s unlimited access to international markets and to all major exchanges
Disadvantages
Cost: Offshore Accounts are not cheap to set up; depending of course on the individual's investment goals. Setting up an offshore corporation may mean steep legal fees, corporate or account registration fees and in some cases investors are even required to own property in the country in which they have an offshore account or operate a holding company.
Furthermore many offshore accounts require minimum investments of between $100,000 and $1 million. Businesses that make money facilitating offshore investment know that their offerings are in high demand by the very wealthy and they charge accordingly.
What’s the risk?
Popular offshore countries such as the Bahamas, Bermuda, Cayman Islands and Isle of Man are known to offer fairly secure investment opportunities. More than half of the world's assets and investments are held in offshore jurisdictions and many well-recognized companies have investment opportunities in offshore locales. Still, like every investment you make, use common sense and choose a reputable investment firm.
This article was issued by Steve Diacono, Intern at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.