Offshore investment

Offshore investment is the keeping of money in a jurisdiction other than one's country of residence. Investors may choose offshore investment to conceal or protect illegally acquired money from law enforcement in the investor's country; or take advantage of higher rates of return or lower rates of tax on that return than offered by the investor's country. Places favoured by investors for low rates of tax are known as offshore financial centers or (sometimes) tax havens.

Although accessible to anyone who can meet the minimum investment amount, offshore investment is often stereotyped as attracting the extremely rich and the extremely dishonest.

Tax is the driving force behind 'offshore', but for the great majority of well-off individuals considering offshore investment, tax is not directly an issue. They reside in high-tax areas such as the EU, the US, Canada or Japan, they pay their taxes, and if they make 'offshore' investments, it is in pursuit of higher returns, and without any intention to evade taxes in their home countries.

Some investors are outside the jurisdiction of high-tax areas, either because they live elsewhere, or because they are temporarily non-resident for work reasons. Such investors can often avoid having to pay taxes on their investments, whether on or offshore, but that is due to the investor's circumstances, not the location of the investment.

So why might an 'offshore' investment be superior to an onshore investment?

The first answer is because it is less regulated, and the behavior of the offshore investment provider, whether he be a banker, fund manager, trustee or stock-broker, is freer than it could be in a more regulated environment.

Reasons

There are many reasons for offshore investment:

• Avoidance of forced heirship
• Asset protection
• Less regulated (for example, hedge funds, which thrive in low regulatory environments due to their highly aggressive investments strategies thrive in offshore jurisdictions, principally the Cayman Islands
• Money Laundering
• Privacy
• Tax advantages (legal)
• Tax evasion (illegal)