Offshore is a term referring to a location outside the boundaries of one’s home jurisdiction. It can refer to a land-based location or an island. The term can refer to investments, banks, corporations and real estate, among other holdings. Companies might move their headquarters or operations offshore to minimize taxes or expenses. In other words, any foreign-based entity located in a country other than the home jurisdiction can be referred to as offshore.
Similarly, offshore investing refers to a situation where an investor lives outside of the country in which he or she is investing. Originally it was mainly high net worth investors enjoying the benefits, since the costs were high but this is no longer the case. Technology and lower cost travel have substantially reduced the expense of investing offshore, allowing more people to reap the benefits. These can include asset protection, tax benefits and fiscal privacy. Offshore Financial Centers (OFCs) used to refer to countries and jurisdictions that provided investment and financial services to non-residents at a scale that was excessively large compared to the size of the country and its GDP. This is no longer the case. OFCs with the most rapid growth are countries and city-states with stable governments and judiciaries, and healthy economies. A well-educated population and easy access as a travel hub are other common elements of today’s popular OFCs.
Holding offshore domiciled assets provides opportunities for saving taxes and sheltering wealth. Depending on your nationality and country of residence, investing offshore can mean that investment income can grow tax-free, in other words at a higher effective rate of return. Offshore investing provides many avenues to protect from inheritance and capital gains tax. Offshore real estate rental income is also gaining traction.
Holding assets offshore lets you centralize your investments, and manage them in a consistent manner regardless of where you live. Expatriates may live and work in several countries over the span of their career. Dealing with a variety of banking practices and languages creates challenges, easily avoided by consolidating investments in one place. Ideal offshore financial centers are financially and politically stable.
More people are living abroad either for their career or to enjoy their retirement. This opens the door to taking advantage of offshore tax benefits that might not be available to those residing in their home country. Depending on one’s home jurisdiction, it can also mean easier access to your money, if wanted for real estate or healthcare at some point.