- How much money do I need to invest offshore?

- There is no absolute low limit, but the extra costs of taking advice, opening new bank acocunts, phone communication at a distance, etc, etc mean that offshore investment is unlikely to be worthwhile for less than say $25,000. Still, costs are coming down all the time because of the Internet. Offshore banks will take deposits down to $1,000, but for a personalised 'private banking' service, you will need to deposit $100,000 or more.

- Should I use more than one offshore centre?

- Different jurisdictions have different advantages. Depending on your agenda, you may find it useful to use two, three, four, or even five different jurisdictions in your offshore structure. Using two or three jurisdictions in an average offshore structure is very common for substantial offshore investors - one for the corporations, one for the trust, and one for the bank account. This three-level arrangement allows your offshore structure to take advantage of the best laws of each country and provides the maximum level of privacy.

- Is it easy to dissolve an offshore fund structure?

- Most offshore structures can be revoked or dissolved very easily. Either the corporate documents or the offshore jurisdiction's corporate or trust laws should specify the dissolution procedure. Dissolving a trust usually costs no more than a small filing fee or a few hours of a lawyer's time. If it would be costly to dissolve a given structure, you can simply remove all the assets from the structure, so it has zero value. You can then leave the empty structure to be stricken from the jurisdiction's register - a cost-effective way to eliminate it. Obviously it would be wise to check dissolution procedures before entering into any offshore engagements.

- What is a trust?

- A trust works by taking assets out of the ownership of the person establishing ('settling') the trust and putting them into the hands of a trustee. An offshore trust is simply one based in an offshore jurisdiction and its profits are usually not taxable there. The trustee normally follows the wishes of the settlor. Trusts, which are based in 600-year old English common law, have been in common use for offshore asset protection for nearly 100 years. Unfortunately, the high-tax countries have therefore had plenty of time to defend themselves against trusts, and by now their usefulness has been severely compromised for the residents of many high-tax countries.

- What is an asset protection trust?

- A trust designed to accomplish a number of estate planning goals of its settlor, before and after death, including planning for the preservation of the settlor's estate from a variety of risks which would threaten to dissipate the estate if one or more of the risks materialised. An APT is typically established in a jurisdiction other than the settlor's home country.

  - Why are investments regulated more than other types of purchase?
 

- Regulation covers the avoidance of fraud (to protect investors from their own ignorance or cupidity), the avoidance of money-laundering (nothing to do with bona fide investors) and has prudential aspects, ie it tries to prevent investment managers from making risky investments that could lead to loss for investors. Regulators believe that people's savings are so important they must be given special protection.

- What is money-laundering?

- The conversion of 'illegal' money into 'legal' money. Thus, a drug-runner who walks into a Caribbean bank with $1m, opens an account, and the next day transfers the money into a Swiss bank account where he invests it into Nestle shares has 'laundered' the money successfully. Nowadays banks are much more careful about accepting large sums of unaccountable cash.

- Is it legal for me to make offshore investments?

- This depends first on where you live. Many countries, including the US, Canada, the UK, France and some other EU countries, make it illegal for offshore investment providers to advertise their products domestically. Despite this, generally speaking it is not illegal for you to make offshore investments (although the US is particularly restrictive). You must check carefully with local advisers as to your rights. It is illegal in almost all jurisdictions for you not to declare the income or gains from offshore investments to your local tax authorities, and in those very few countries with remaining capital controls, to the monetary authority.

- What is meant by the terms 'domicile' and 'resident'?

- 'Domicile' normally relates to the country or state which an individual regards as their permanent/ultimate home location. A person's domicile is established at birth and this remains until an individual resettles with the firm intention of remaining in that new location.

'Residence' is normally determined by an individual's status at a particular time. The rules vary from country to country, but in many cases presence in a country for more than 183 days in any one year is enough to constitute residence for tax purposes.

- What is withholding tax?

- When a dividend (or royalties or interest) is paid internationally, the country from which the payment is made usually taxes the payment as it leaves, by 'withholding' a proportion of it, usually between 10% and 30%. If there is a double tax treaty between the two countries concerned, it is often possible to reduce the tax, or to reclaim some or all of the money. Some receiving countries allow the withheld tax to be set off against domestic tax liabilities.

- What is a double taxation treaty?

- An agreement between two countries intended to relieve persons who would otherwise be subject to tax in both countries from being taxed twice in respect of the same transactions
or events. By and large, most offshore jurisdictions do not have double taxation treaties, since they don't have much local taxation. Offshore jurisdictions which do have double tax treaties usually cannot use them to benefit investors receiving complete local tax exemption.

Why do people expatriate?

- For various reasons. Some people expatriate purely for financial reasons, or because of displeasure with government policies, while others are obliged to leave their country of residence by the nature of their job, or the service that they provide. The duration of the overseas stay, the destination(s) and surrounding circumstances can differ greatly, but the uniting factor is that in the majority of cases being an expat can be financially advantageous as well as culturally enriching.

  - What are the banking/investment options open to me as an expatriate?

-As an expatriate, you really have your pick of the investment arena.

A lot depends on the tax regime in your home country, but assuming that you are going to be non-resident for the duration of your absence, then nationals of most countries are in an ideal position, as expatriates, to take advantage of offshore financial services in a tax-efficient way.

In addition, many high tax countries offer attractive investment opportunities and tax breaks for non-resident individuals and entities.

There are many different structures and services of especial interest to expatriates, so the determining factors need only be the size of your pocket and your inclinations!

- What should I do about banking while I am overseas?

- Whatever your financial circumstances, as an expat you would be advised to examine the possibility of opening an offshore bank account, in order to take advantage of the tax efficiency and relatively enhanced confidentiality that this provides. No tax is payable on interest arising from money held in an offshore bank account (unless the EU Savings Tax Directive applies), so even if you are just looking for somewhere to receive funds remitted from home, or have your salary paid into, this has to be a plus.

There are various types of account available to suit your means and needs. These include instant access accounts with credit/debit card facilities, fixed term deposit accounts with tiered rates of interest, and fixed and variable rate accounts.

In most cases it would also be useful to set up a bank account in your destination country (where you will be living or working most of the time), from the point of view of conducting day-to-day transactions more easily. You could arrange with your employer to have part of your salary or expenses paid into your offshore account, and part into the local account.

Offshore accounts can usually be in a range of hard currencies, but the local account may have to be in the local currency: having two accounts means that if the value of the local currency fluctuates greatly, or if you are taxed locally on money received, then you are protected to a certain extent.

  - Would offshore fund investment be suitable for me as an expatriate?

- It would be ideal! Fund investment means that you can choose to invest in a particular class of assets without having to examine the characteristics of each asset individually, and if you choose to invest in an offshore mutual fund, the responsibility for the management, maintenance and administration is taken by the promoter, manager and custodian of the fund.

There are various options, ranging from the ultra safe to the very aggressive, but the two main categories that offshore funds can be divided into are private funds (longer term investment, usually requiring more capital, but hopefully generating greater returns) and public funds (usually open-ended, so more flexible, and requiring less capital). Always depending on your original home tax regime, many expatriates will be able to receive dividends and capital returns from an offshore fund without paying tax while they remain non-resident.

- I'm not interested in investing, I just want somewhere to keep my money safe. What type of structure would suit me?

- If you have substantial liquid net worth that you would like to protect during your expatriation, and afterwards, then an offshore trust may be the way to go, along with offshore bank accounts. This type of structure is more used for asset protection purposes than for tax efficiency during your lifetime, as many high tax countries (for example the US) now have legislation designed to make offshore trusts at best tax neutral. However, the asset protection advantages, and the enhanced privacy afforded by an offshore trust are useful features. Trusts are still effective as a defence against inheritance tax.

An offshore trust basically works by transferring control of your assets away from you (the settlor) to a custodian or trustee, who will manage the trust in the best interests of the beneficiary/ies (This can also be you, or any other person, group of people, or entity that you specify). It is normal for trustees to operate the trust in accordance with the wishes of the settlor.

There are different types of trusts for different purposes, and you need professional assistance in selecting the right type in the right jurisdiction. If your home tax regime does not yet have anti-avoidance legislation, and you hope to gain tax benefits from setting up a trust, then you will probably use a discretionary trust, in which the trustees have full control over the disposition of the trust income and assets. You can still be named as a beneficiary, however, and the trustees will still follow your wishes.

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- If you are going to work in a country which wants to tax your world-wide income, or if you are going to return to your home country to a world-wide taxation regime (quite likely) then an offshore company may be worth considering.

This is another complex area in which professional help is needed, but the interpolation of a company can sometimes distance you from your income sufficiently to reduce or avoid taxation. In some countries there are plenty of rules to prevent this; but not in all, by any means.

An offshore company can take many different forms, some of which are not of interest to the individual expatriate investor. However, if you have a large and diverse investment portfolio, or provide a professional service (for example consultancy in the engineering or finance industry), then this type of structure may be of interest to you.

If you are engaged in providing a personal or professional service, you may be able to achieve considerable tax savings by setting up a 'personal service company'. You can contract to supply the service regardless of residence, and the fees earned can accumulate offshore while you work for a low salary in the country where you are taxed. It only works in some countries, and you may have to do something more complicated than just owning the company yourself, if it is not to be 'looked through' by the taxman.

There are, of course, many other types of offshore company that can be formed to deal with the needs of large corporations, or expats with very specific needs, i.e. globetrotting entertainers or sportsmen.

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- Choosing a jurisdiction that you would be happy to invest, bank, reside and work in, and possibly retire to means taking into account a lot of factors, and you will need to do your homework. However, the following information may help you to decide which jurisdictions interest you initially. First of all, the following questions must be asked of any potential investment or banking base:

1) Is the jurisdiction politically and economically stable?
2) Is the tax regime benign for investments?
3) Are there any changes in prospect which may impact on your investment/savings either now, or in the future?
4) Are the professional support services up to a good standard?
5) Is there a good communications network in place?
6) Is the geographical location convenient for you during your expatriation, and will it still be so when you return home, or move on to a different country? If you are expatriated to Australia, for example, you will have no problems dealing with an organisation based in Hong Kong, but tremendous problems accessing an offshore structure in the Isle of Man during business hours.

The increasing use of the internet means that this is less of a problem than it perhaps would have been a few years ago, but unless you particularly want to conduct your business dealings in pyjamas, you would be wise to take this into account!

So - you have found a jurisdiction that fulfils all of the above criteria. That's the decision made, then, isn't it? Not quite. Although a particular jurisdiction may be ideal for the type of investment or banking that you have chosen, if you are planning to work there in the future, or spend your twilight years there, you will need to consider many other factors, for example the tax liabilities of resident foreign nationals there, how easy it is to obtain a work or residence permit, the standard of infrastructure and services, and the general lifestyle.

Below are summaries of much of this information for some of the main offshore jurisdictions, in order to make your life just that little bit easier…

- What is private banking?

- The expression 'private banking' is nowadays more to be seen as a gateway into investment management in the broader sense than as offering a confidential, almost family relationship with a man to whom you entrust your money. Those relationships still exist in the traditional places, but they apply more to extremely rich people than to moderately wealthy or well-off people who want more personalised treatment than they can get from their high street branch, or their regional 'personal banker'.

In InvestorsOffshore.com, 'private banking' is taken to mean investment management offered on a personalised basis by a bank to an individual (or indeed his company) with disposable wealth of more than $100,000. 'Private banking' is obviously not synonymous with 'offshore', but the costs of a personalised relationship begin to be worthwhile at the $100,000 level in the light of the superior gains to be realised from offshore investment.

- How does a private banker get rewarded?

- Depositing money with a bank is reward enough, of course, whether into the bank or into one of its financial products, but private banking when it has an advisory nature and is not accompanied by lending or borrowing may be fee-based. The level of the fees is highly variable: they will be lower if the bank will get the benefit from time to time of being able to offer bridging finance, or of holding large amounts in transit etc, or if it can hope for more substantial involvement with you in future. If the relationship is purely between financial adviser and client, then the fees may be substantial.

- What is Offshore Asset Protection, and do I need it?

- Asset Protection. Does exactly what it says on the tin. If you have a substantial liquid net worth, this may be an aspect of offshore private banking which interests you. Especially in the USA, people are turning to offshore asset protection as a way of safeguarding their savings by distancing themselves from their assets in the eyes of the law, although such moves have not gone unchallenged in the courts.

Offshore asset protection can be achieved in a number of ways, for example the establishment of trusts, IBCs (International Business Corporations), foundations, partnerships, and other legal entities.

There is, however, absolutely no point in attempting to set up an offshore structure for the purposes of asset protection during, or immediately before action is taken against you, as fraudulent conveyance statutes will mean that if your intention is seen to be to defraud a legitimate creditor, your structure will afford little or no protection.

- Is private banking private?

- In most countries one of the terms of the relationship between banker and customer is that the banker will keep the customer's affairs secret. Staff members are normally required to sign a declaration to this effect. Where numbered accounts are used their purpose is to limit the number
of persons who know the identity of the client. In certain countries (e.g. Switzerland and the Cayman Islands) specific legislation makes breaches of bank secrecy subject to criminal law sanctions.

However, in all legal systems (including Switzerland) there are specific cases where the duty of secrecy of a banker is overridden by local legislation or international treaties, eg where fraud, money laundering and drugs are involved.

- What is the situation regarding exchange of information between countries?

- The recommendations of the FATF and the initiatives of the G7 and EU countries, and the OECD have thrown bank secrecy policy into turmoil. These recommendations have been targeted at jurisdictions which the FATF considered to have ‘serious systemic problems with money laundering controls' and for those who failed to review their practices and make reforms, the adoption of ‘counter measures' was darkly hinted at. The recommendations hinged on creating greater transparency during the process of offshore investment/banking, and the reporting and exchange of information regarding transactions deemed to be unusual.

In 2002, the IRS was awarded the right to demand the records of American Express and MasterCard transactions for customers who hold cards issued through Antigua, the Bahamas and the Cayman Islands. This came as a result of the testimony of John Mathewson, a former Cayman Islands banker who revealed that the cards could be used for tax evasion purposes.

The implementation of Qualified Intermediary legislation in January 2001 also affected those with American source income, meaning that financial institutions in countries which don't obtain approval from the IRS come under heavy pressure to divulge information about their customers to the IRS, and to tax US source income at the full rate in many cases, even when a lower rate is due.

- How will this affect me?

- With regards to the FATF recommendations, many of the 'blacklisted jurisdictions' have made moves towards greater transparency. You would be wise to ascertain and monitor the status of your chosen jurisdiction.

From the point of view of a US citizen or expat seeking confidentiality for legitimate reasons, the wisdom of seeking a confidential banking relationship with an institution with a corporate presence in the US should also be carefully considered, as the IRS was able to gain access to the transaction records of AmEx and MasterCard customers via the Miami based sections of the companies' Caribbean operations.

- What is the Savings Tax Directive?

- The European Union Savings Tax Directive (STD), which came into effect on 1st July, 2005, in fact forms merely one part of a major tax reform package launched by the European Commission in 1997. As originally drafted, the STD aimed at a uniform 'information exchange' regime to apply across the Union, with all countries agreeing to report interest on savings paid to the citizens of other Member States to those States' tax authorities.

Because of resistance from EU Member States with strong traditions of banking secrecy, the Commission had to allow Austria, Luxembourg and Belgium to apply a withholding tax (at 15%) until 2009. Many of the UK's offshore financial centres have been forced to join the STD, along with the Netherlands Antilles, Aruba and some European centres (Andorra, Monaco, Liechtenstein and San Marino). Most of these places have also taken the withholding tax route, as will Switzerland, which was the hardest nut for the EU to crack.

The STD applies to many types of return on savings instruments, all loosely described as interest, when received by individuals, but does not affect interest paid to companies. Under the information exchange system, the identity of recipients will be known to their home tax authorities; when tax is withheld, the identity of the recipient will not be reported, thus preserving confidentiality.

- Who runs an investment fund?

- Three distinct functions exist: the promoter is the person or company who established the fund and markets it; the manager is the person or company who runs it from day to day, and the custodian is the person or company who holds the investment assets on behalf of the subscribers. In some jurisdictions, these functions have to be exercised by separate bodies, but in many, two or more can be combined. All three functions are rewarded with fees, usually based on the value of the fund, but sometimes being success-based.

- An investment fund is a pool of money contributed by a small or large number of subscribers, unit-holders or shareholders, which is invested and administered on their behalf. They share the proceeds (or losses) in proportion to their subscriptions after deduction of costs.

- What is a mutual fund?

- A mutual fund (a unit trust in the UK) is an investment fund divided into units (equivalent to shares) which can be bought from and sold back to the manager of the fund, but which are not traded as such. The value of the fund NAV (net asset value) per unit is calculated frequently. Many countries have favourable tax regimes for mutual funds, to encourage saving.

- What is an open-ended investment fund?

- One which has no pre-determined closing date. Most publicly-marketed investment and mutual funds are open-ended.

- What is an closed-end investment fund?

- One with a pre-determined closing date, on which the fund's assets must be realised and the proceeds distributed back to the subscribers. Closed-end funds are normally used by groups of private investors, often working in 'limited partnerships' for tax reasons.

- What is an offshore investment fund?

- One which is based in an offshore jurisdiction (although the term is often used, perhaps incorrectly, to describe a fund which is based outside a particular high-tax country). An offshore investment fund may have the problem that it cannot market into some important high-tax countries unless its local supervisory and regulatory regime is 'recognised' by high-tax countries as being up to their standards. Broadly speaking, this means that if you see an offshore fund being marketed in a high-tax country, its investment behaviour is probably quite constrained, and this may limit its ability to achieve high returns, in the interests of protecting investors.

- What types of offshore fund are there?

- Offshore funds come in many varieties, even more than onshore funds (those in high-tax countries) which are often limited by local regulation to less volatile types of investment. Thus, there are offshore bond funds, equity funds, sectoral funds, emerging-market funds, money-market funds, hedge funds, property funds, income funds, capital funds - and more.

- An offshore equity is one that is listed on a stock exchange in an offshore (= low-tax) jurisdiction. Usually there are no withholding taxes on dividends paid out, and very low local taxation of corporate profits. An offshore equity brokerage is simply one that is based offshore, and allows you to buy regular 'onshore' equities from an offshore base. This won't directly help you to escape withholding taxes, but it may help with national stamp duties and capital gains tax, as well as preserving confidentiality.

- What is a 'recognised' exchange?

- If a stock exchange has a regulatory and supervisory regime which is up to the standards of established stock exchanges in high-tax (OECD) countries, then it may be 'recognised' by the authorities in some or all OECD countries. This means that securities listed on it can be offered for sale in the high-tax countries concerned, and in particular can be bought by mutual funds within high-tax country regimes.

- How do offshore equity brokers' rates compare with other discount brokers?

- Rates are usually competitive against both broker-assisted and Internet brokers, and extremely attractive compared to traditional full service brokers.

- How do I deposit securities into an offshore brokerage account?

- Endorse your securities certificate exactly as it appears on the face of the certificate. Write the number of your offshore brokerage account account number on the upper left face of the certificate. On the back of the certificate between "appoint and attorney" write the name of your offshore brokerage's settlement agent (obtainable from the brokerage) which ensures that the certificate can be negotiated only by the agent. Then send the certificate to your brokerage by a secure route, along with your written instructions.

- What type of accounts can I open with an offshore equity brokerage?

- Individual and Joint Accounts (cash or margin)
Corporate and Partnership accounts.
Estate and Trust accounts.
Investment Club accounts.

An individual account is appropriate for investors who will be the sole owner and authorized manager of their investments.

If your account will be owned by two or more persons, you may want to open a joint account. A joint account will enable each owner to trade in the account and to receive income, proceeds, or securities from the account.

To open a Corporate or Partnership account you must complete a paper application and provide a corporate or partnership resolution.

Trust or Estate accounts require legal documentation in addition to account applications before they can be established.

To establish an investment club account, for a group of individuals trading under one entity name, you must fill out a paper application and provide an investment club agreement.

- Can I use the Internet to buy offshore equities?

- The Internet is becoming an excellent tool for international and offshore investors. If the online investment site is properly structured (with SSL encryption technology and digital certificates, which are common features), it should be both safe and efficient. More and more brokerage firms and exchanges are moving to Internet-based clearing services and online financial services. The Internet allows you to manage your offshore portfolio with the click of a button, from the comfort of your home.

This has substantially reduced physical barriers to international investing and allows investors to stay informed and make profitable investment decisions. Offshore investors can also use the Internet to develop their knowledge and understanding of foreign jurisdictions, investment products, and the investing process.