Introduction to Offshore Investment

Published / Last Updated on 21/10/2023

The attraction of investing offshore is the fact that investments grow tax free and interest on offshore bank accounts is also tax free.  This means they are not taxed in the country/state that they are based.

Gross Roll Up

This is a term that many use for offshore investing as your investment grows tax free, then compounded growth is faster over the years as you get tax free growth on top of tax-free growth (gross roll up) so your investment, in theory, should grow faster than an onshore investment that may be subject to some taxes inside the fund.  This may prove attractive for 40% and 45% tax payers that may be earning large sums sums today but will be basic rate tax payers when they retire and start drawing down funds.

Offshore Products:

  • Bank Accounts – interest on international bank accounts will not be subject to taxes locally but you may or may not be subject to taxes where you live when interest is added and not when you draw down funds.
  • Investment – grows tax free and investors are not taxed on growth locally but you may or may not be subject to taxes where you live when you draw down funds.
  • Pensions (offshore pensions are technically offshore investments) but sometimes branded as International Pensions, but there is no personal tax relief (your employer may be able to offset expenses) when you pay in and you may or may not be subject to taxes where you live when you draw down funds.
  • Trusts (and corporate/international business companies IBC) for holding wealth, property and more.  No local taxes but you may or may not pay taxes where you live depending upon taxation law.

You should also note that management charges on offshore investments will usually be higher than onshore investments.

Examples of Offshore Tax Havens

These are the jurisdictions where the above investments are not taxable unless you live in that jurisdiction, and some may surprise you:

  • Isle of Man
  • Channel Islands
  • Gibraltar
  • Many Caribbean States
  • Delaware (USA)
  • Dublin
  • Luxembourg
  • Belgium
  • Vanuato

Surprising isn’t it that some EU member nations are deemed offshore jurisdictions due to the lack of taxation on investments for non-residents?  These territories offer tax breaks to non-residents to encourage investment in their territory thereby creating a stable wealth management industry.

Blacklisted Territories

Many countries have lists of ‘blacklisted’ territories where the country that you live in may still tax you on offshore gains and income even if you have not withdrawn any of the growth.

How Much Can You Invest?

It is usually unlimited but be aware of compensation protection.

Investor Compensation Schemes

Care should be taken to ensure that any offshore compensation scheme is robust.  When some Icelandic banks went into liquidation in 2008, it took up to two years for investors in offshore branches to get their money, but it took investors in the UK branches of the Icelandic banks just 4 weeks to get their compensation.

Offshore investing has its place and can be a most tax efficient way to invest.  Professional investment and tax advice should be sought when considering offshore investment.

Beware Commission Pirates: watch Expat Pirates

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