Offshore investment vehicles may take a variety of forms: unit trust, mutual fund or investment company, and may be open-ended or closed. In all cases the main reasons for being offshore are that the gains from investment are untaxed or very lightly taxed in the jurisdiction concerned. There maybe tax liability on withdrawal from the offshore vehicle, but declaration and administration of the tax is usually the responsibility of the client (in some cases country compliant vehicles make tax payments on your behalf)
International Offshore Financial Centre's vary greatly in the legal and fiscal regimes they provide for offshore funds. The most widely-used jurisdictions are Hong Kong, Bermuda, Cayman Islands, Guernsey, Hong Kong, Channel islands and Luxembourg. Offshore funds can offer greater returns and often greater risks than onshore funds, many countries restrict investment in such funds by their citizens, and restrict marketing by offshore funds on their territory or to their citizens. The USA is particularly fierce in this regard, and offshore funds take great care not to offend against US law, refusing to accept investment from US residents. The UK & europe's regime is more permissive.
The European Union is now attempting to create a Union-wide regulatory regime for investment funds which is seen as being mostly negative by funds both inside and outside the EU. Opinions vary, as always, especially with finance. The media might project one view, while your colleagues or lovemoney.com may have other opinions, but it seems that the general reaction to the regulatory regime is negative. For much of 2010, the legislation was debated in the European Parliament. The AIFM (alternative investment fund managers) directive will impose registration, reporting and initial capital requirements on a financial industry sector which until now has been subject only to "light touch" regulation. It is hoped that, following its introduction in 2013, the enhanced regulatory oversight over alternative investment fund managers will enhance investor protection and financial stability. The most controversial proposal in the directive has been that AIFMs from 'third countries' would be able to obtain that EU permit, or ‘passport’, to sell their funds within the EU without first having to seek permission from each member state and comply with different national laws. Individuals or companies who are tax-resident in a high-tax country may not be able to benefit much from the tax advantages of an offshore fund if they are taxed on their world-wide income. Some funds 'roll up' income and capital gains for this reason, allowing the tax-payer to defer taxation until the fund eventually distributes gains, or units/shares are sold.
International Offshore Financial Centre's vary greatly in the legal and fiscal regimes they provide for offshore funds. The most widely-used jurisdictions are Hong Kong, Bermuda, Cayman Islands, Guernsey, Hong Kong, Channel islands and Luxembourg. Offshore funds can offer greater returns and often greater risks than onshore funds, many countries restrict investment in such funds by their citizens, and restrict marketing by offshore funds on their territory or to their citizens. The USA is particularly fierce in this regard, and offshore funds take great care not to offend against US law, refusing to accept investment from US residents. The UK & europe's regime is more permissive.
The European Union is now attempting to create a Union-wide regulatory regime for investment funds which is seen as being mostly negative by funds both inside and outside the EU. Opinions vary, as always, especially with finance. The media might project one view, while your colleagues or lovemoney.com may have other opinions, but it seems that the general reaction to the regulatory regime is negative. For much of 2010, the legislation was debated in the European Parliament. The AIFM (alternative investment fund managers) directive will impose registration, reporting and initial capital requirements on a financial industry sector which until now has been subject only to "light touch" regulation. It is hoped that, following its introduction in 2013, the enhanced regulatory oversight over alternative investment fund managers will enhance investor protection and financial stability. The most controversial proposal in the directive has been that AIFMs from 'third countries' would be able to obtain that EU permit, or ‘passport’, to sell their funds within the EU without first having to seek permission from each member state and comply with different national laws. Individuals or companies who are tax-resident in a high-tax country may not be able to benefit much from the tax advantages of an offshore fund if they are taxed on their world-wide income. Some funds 'roll up' income and capital gains for this reason, allowing the tax-payer to defer taxation until the fund eventually distributes gains, or units/shares are sold.
The tax advantages revolve around tax control rather than tax avoidance, by placing investments in a tax-neutral investment area (e.g. via an investment bond), it is normally normally possible to decide where and when to pay tax on investments. For instance, if a client has been paying EUR 750 a month into an offshore retirement investment plan for 20 years, in year 19 of the plan they may consider gaining access to the fund. If the client is living in for example UK at this point there will be a tax applicable to any gain within the offshore wrapper. The client, however, has the option of establishing his/her tax residency in a more tax friendly location in order to cash-in the investment. For example if the client moved to Holland for a few years, they could take advantage of a lack of capital gains tax in the Netherlands.
