Offshore Planning
Offshore Jurisdictions
Evolution:
Offshore tax havens which preceded the modern form of offshore financial centre, were of British origin designed to shelter assets from the economic uncertainties following WW II.
The tax haven's key product was private banking to manage the estates of rich families in a tax-free environment. The motivation for remote islands to establish such centres was economic, to create good local employment opportunities. Early pioneers were the Channel Islands of Jersey and Guernsey near the coast of Normandy , and Bermuda in the mid Atlantic .
Today offshore financial centres include 6 of the world's 12 top banking centres involved in corporate finance and individual investments. The foreign deposits of Japan ($960 bn), US ($740 bn) and France ($510 bn) combined, are now less than the combined influence of the largest 6 offshore centres of Cayman Islands (520 bn), Luxembourg ($485 bn), Hong Kong ($450 bn), Switzerland ($450bn), the Bahamas ($420 bn), and Singapore ($400 bn).
Expansion:
The role of offshore finance centres in the cross-border financing of corporations has developed into a huge industry. Corporations find offshore centres indispensable for their expansion into new markets at competitive costs. For example, offshore centres already dominate such international activities as shipping, aircraft financing and captive (self) insurance.
Close to one million offshore companies have been incorporated in the past decade, and most of the world's leading corporations have operations in at least one offshore centre. Examples include IBM and Microsoft in Dublin ; Orient Express and American Airlines in Bermuda; De Beers in the Isle of Man; and GE and CNN in Cyprus . The world's leading financial institutions have all increased their offshore financial services, including Chase Manhattan, Citibank, Goldman Sachs, Fidelity Funds, Charles Schwab, Rothschilds, Royal Bank of Canada, Deutsche Morgan Grenfell, Credit Suisse, Lloyds Bank, Barclays Bank and Bank of America.
Accelerating Growth:
Offshore industry expansion is accelerating. By 1995, US$5 trillion was being held in offshore centres by wealthy persons, companies and institutions through bank deposits, under discretionary management (trusts, brokerage accounts) or invested in offshore mutual funds. Offshore bank deposits and assets in offshore investment funds on their own each accounted for more than US$1 trillion.
The number of offshore centres is on the increase too with newcomers such as Dublin 's International Financial Centre, Madeira , Mauritius , Labuan ( Malaysia ), and Malta being added. More states, Botswana for example, are passing laws to enable the establishment of offshore services in their countries as well.
Increased Capabilities:
Offshore activities still include international tax planning, using legal mechanisms to reduce, eliminate or defer taxes on income, wealth, profits and inheritance, or to accumulate tax-free income offshore pending recognition in a taxable jurisdiction. However, the principal function of offshore centres is no longer to minimise current and future taxes or to avoid foreign exchange controls. They are now on the cutting edge of new corporate, investment, trust, insurance, partnership and banking legislation and are amongst the first to offer unique structures such as limited partnerships, asset protection trusts, purpose trusts and limited duration companies, while continuing to provide the only effective shield against the dangers of confiscation, expropriation, tort law abuse and sanctions.
Specialisation:
There are great variations between services rendered in different offshore jurisdictions, and it is no longer an easy matter to decide the best venue to serve a particular financial need. For example, the degree of specialisation that has occurred places Bermuda in a pre-eminent insurance and reinsurance position, Luxembourg, Dublin and Guernsey at the forefront of offshore investment funds, the British Virgin Islands in the formation of International Business Companies, Jersey in offshore trusts, the Caymans and Bahamas in offshore banking, the Caymans in medical liability insurance, Barbados in Foreign Sales Corporations, and so on. Geographic focus is another factor. The Caribbean centres cater particularly to US and Canadian needs. Those in the Channel and British Isles relate more to British Commonwealth countries. Cyprus accommodates East European needs, Mauritius focuses on Indian Ocean trade, and Dublin and Madeira attempt to act as gateways to the European Union.
Professional Service Providers:
Service providers such as international tax planners, trust lawyers, accounting firms, asset management companies, estate planners, bankers and security dealers are establishing offices offshore in droves, and must all become more familiar with the best attributes of different jurisdictions if they are to advise their clients properly. The days of their services being rendered through a single jurisdiction are coming to a close. As the level of sophistication involved in the services of various jurisdictions rises, the need for complete impartial information about the whole industry also increases, which is exactly what Offshore Outlook is dedicated to provide.
Public Image:
The offshore financial industry is often portrayed in the popular media as a hedge for illegal enterprise and tax evasion. This notion is misleading and outmoded.
Trend Toward the Mainstream:
It is most important to recognise that the offshore financial services industry is in transition from institutions serving the very wealthy and large international businesses to a much broader-based clientele of middle market corporate and private customers attracted to a widening basket of broad-based fiduciary, trust, brokerage, and other investment services.
Offshore financial institutions are now actively seeking the business of a much broader range of investors, and the formation of offshore trusts and offshore companies is soaring.
Offshore Investment Funds Growth:
The explosive growth in offshore investment funds which already represent assets of more than $1 trillion and begins to rival the US domestic mutual funds industry in size, is a good example of the offshore industry going mainstream.
Luxembourg which deals mostly in offshore funds, is now the fourth largest investment funds centre in the world. In due course offshore funds will outgrow even the largest domestic fund centres. It simply makes good sense for investors in an increasingly global economy to invest in higher yielding vehicles with inherent tax benefits and little or no cross-border constraints. The urge to invest directly in emerging markets is driving the growth of offshore funds still further.
Through reciprocal relationships and compliance with UK unit trust regulations, offshore funds are routinely able to be marketed freely to the public in most European, British Commonwealth, and by special agreement, in most industrialised countries in Asia, including Japan . Public offshore funds are still not sold in the US because their sponsors choose not to go through the cumbersome SEC registration process. The irony is that the same investment promoters who manage US domestic funds ( Aetna , Chase, Citi, Fidelity, Lazard, Morgan Stanley, Templeton, for instance) also manage offshore versions of the same type of fund which frequently yield higher returns. Americans do, however, participate in private investment funds up to a limit of 100 US citizens per fund (SEC changes may effectively remove the 100 rule). Many such funds are being offered in the Caymans.
Relaxed Regulation:
Freedom from excessive regulation is a major attraction of offshore centres and is the reason that banking, insurance and shipping registration have become important pillars of the offshore industry. Furthermore, offshore centres frequently permit diversification into activities not permitted at home. Companies subject to heavy regulation in their own country in the face of less regulated foreign competitors, find their only solution in using offshore centres. For example, to engage in the securities business which is denied them at home, US and Japanese banks solve the problem by establishing offshore entities.
A new wave of financial instruments is moving offshore for the same reason. The wave includes hedge funds, closed-end investment funds, debt instruments, and Eurodollar trading, to name just a few.
Global Investment Trend:
The concentration of equity markets in the largest industrialised economies is diminishing as stock exchanges in jurisdictions besides the traditional ones expand, and emerging markets move toward centre stage. The predictable result is a growing need for private investors and institutions to diversify their portfolios. When they discover how easy it is to trade internationally through an offshore centre, that demand too will grow. To facilitate direct investing in global markets the demand for tax-neutral offshore structures such as limited partnerships is expanding. The threat of increased domestic regulation as the EU takes root, or as Hong Kong is taken over by China , has sparked renewed interest in offshore products, stimulating additional growth. The liberalization or abandonment of foreign exchange controls in many Latin American, African, and other countries is contributing to additional growth in the use of offshore services.
Offshore banks and trust companies are gearing up in anticipation by creating online facilities to accommodate remote electronic transactions. Several major banks are providing remotely accessed international banking services from offshore centres. OCRA, an offshore company registration group with offices in 18 different jurisdictions, is offering offshore company incorporation services on the Internet. By establishing an International Business Company (IBC) with the right structure in an offshore jurisdiction an American citizen, for example, may legally circumvent the barrier to invest in offshore funds.
The dramatic changes in global communication currently happening everywhere are profoundly influencing the way in which many businesses are conducted and will further stimulate direct international investment.
Shelter from Tort Law Abuse:
Another avenue of growth in offshore services is the use of offshore asset protection trusts (APTs) to safeguard savings against attack from frivolous claims, which unfortunately now happen all to often within the vagaries of certain tort law practices; in the US for instance. By making it easy for high risk professionals or businesses to establish asset protection trusts in offshore jurisdictions with some of the most advanced laws providing greater certainty of protection, the anxious needs of many new clients can be served. The laws are there, the services are there. To become commonplace only requires wider knowledge of the benefits available and easier access to the services, both of which are happening.
Summary:
Taken together these trends present unique opportunities for very substantial growth in a market which is currently still relatively unknown.
Please click on the links below for further details:
Jersey
Dublin
Luxembourg
Bahamas
Gibraltar
British Virgin Islands
Cayman Islands
Mauritius
Guernsey
Isle of Man
Bermuda
