When discussing the topic of investing offshore with friends, family, colleagues, and acquaintances, the question of “why invest offshore?” invariably comes up.
In my mind, there are a myriad of reasons to invest offshore, but here are some of my favorite ones:
Increased privacy – Protect yourself from the increasing loss of privacy, and prevent domestic credit reporting bureaus from collecting information on you and your assets. Many offshore financial centers have strict banking and confidentiality laws. As long as one is not engaging in arms trafficking, money laundering, or other illegal activities, investing offshore will better enable you to protect your privacy.
Earn higher returns – Offshore funds may have more freedom in terms of what they can invest in, whether they go long or short, as well as more freedom to take advantage of market fluctuations and cyclical movements. As a result, you have the potential to earn higher returns than you could in your country of residence, where there is probably more regulation and red-tape, and where fund managers might be restricted as to the investments they are allowed to make.
Avoid high taxes – Depending on your citizenship and where you reside, many low-tax districts can offer you products that have little or no tax at source. In addition to this, by forming an offshore corporation or trust, you can potentially lower your tax burden.
Protect your assets from being forfeited – Many offshore financial centers are not required to accept the laws or civil judgments of a foreign government. By creating a foreign corporation and/or trust, you can prevent your assets from being seized by our government and/or lenders who want to collect on outstanding debts. As societies are becoming more and more litigious, it is a good idea to invest offshore so you can protect yourself against any potential lawsuits that may occur in your country of residence.
Avoid having to depend on a state pension – Even if you live in a country that offers a state pension, it is doubtful that a state pension alone will provide you with the money to have a quality retirement. With an aging workforce, diminishing returns, and fewer workers to contribute into state pensions, depending entirely on such a vehicle to provide you with a quality retirement is not the best idea.
While there are risks associated with investing offshore, and there may be increased complexity when managing an offshore portfolio (not to mention tax implications), I believe the benefits are too tantalizing to ignore. Also, there are risks even when one invests in familiar investment vehicles in their home country. There’s no way to completely eliminate risk, but with the right strategy and right knowledge, in addition to the correct team of advisors (financial and tax), one can reap huge benefits investing offshore.