Investing offshore has become increasingly mainstream in recent years, and is not just associated with the rich, famous, and wealthy (as the stereotypes suggest). Nevertheless, offshore investment opportunities are not for everyone. I recommend that you should always seek professional advice prior to making a new investment move and to consider thoroughly the advantages and disadvantages of such investments.There are obvious benefits that come to mind to choose offshore investing such as helping to relieve tax as well as potentially being a safer bet than investing at home (onshore). But naturally this will bring up controversial legal and ethical questions regarding tax avoidance and tax evasion, which you must take into account for your specific situation, along with the pros and cons.
Offshore Investments: Some Advantages
- Tax Advantages — with tax benefits, it is easy to see why these type of investments have become rather common with a number of investors over the years since such product offerings were conceptualized and made available not only to the big corporates but also to individuals. Offshore companies and investments can offer much more profitable tax conditions thus providing you with a worthwhile reason to proceed.
- Privacy — privacy and confidentiality has always been a big pull for offshore organisations. Your financial information (generally) will not be made accessible to anyone else. Good for those of you who require discretion.
- Low Levels of Regulation — by and large most offshore jurisdictions have lower regulatory requirements thus enabling them to offer a wider range of investment opportunities compared to their traditional and highly regulated onshore counterparts. As a consequence, for example, mutual funds and hedge funds have flourished in such lower regulated environments.
- Diversification of Assets — investing in foreign markets can help you diversify your portfolio of assets, thus enabling you to preserve your portfolio even when global economic conditions aren’t so favourable.
- Cost — now this is a contemptuous point worthy of note for both sides. From a positive standpoint, due to the increased competition and transparency in offshore investments, costs and fees have tended to decline thus providing even more incentives for potential investors to move overseas.
Offshore Investments: Some Disadvantages
- Biased Tax Competition — offshore investments can encourage tax competition, which is lop-sided or biased. This eventually will have an impact on the economy as a whole.
- Transparency — the private and confidential culture of offshore jurisdictions could lead to a reduction in transparency. Many have argued that this can sometimes serve the interests of those looking to carry out illicit or criminal undertakings.
- Risk vs. Regulation — if there are lower levels of regulation this could imply an increase in financial markets risk, which can lead to a greater probability of subsequent recessions and potential loss of investments.
- Safety of Funds — even though there are increased tax benefits with offshore investments (as highlighted above), there is not always the safety net and protection that is standard when investing domestically. If you are investing overseas, ensure that you invest in a country with the right regulations, and once again, please seek professional advice in all instances.
- Cost — as stated in the advantages section, there is a case for this point but you must also be aware that there is a significant difference in fees and costs associated with offshore investments when compared to onshore. To obtain the aforementioned benefits stated above, you will need to pay a premium, which not only includes the one time setup fees, but also ongoing maintenance and service charges for items and products, which are generally free (or have minimal fees) in the domestic markets.
Offshore Investments: Closing Statement
Even though it has become much simpler and more transparent to invest offshore with the plethora of companies offering such services, both domestically in your home country and overseas, if you want to find out more about offshore investments, you unequivocally need to speak to an expert in this field such as a professional and experienced financial advisor. There are still too many pitfalls and unknowns that will arise later. Trust me, I have learnt this the hard way but am better for it. However, it is always best to be extremely prudent and cautious in these matters especially when (for example) you are looking to invest large sums of money or transfer your pensions offshore. It is better to be safe than sorry!
By Mawdud Choudhury, CEO of Meedah Group Limited
Meedah Group and its employees are not a licensed financial advisor. The information presented in this article is an opinion, and is not purported to be fact. Bitcoin and cryptocurrencies are volatile instruments and can move quickly in any direction. Meedah Group and its employees are not responsible for any trading loss incurred by following this advice.