Whilst Offshore Funds have traditionally been considered high return/high risk creatures, recent performance have caused a rethink. The more consistent performance of Offshore Funds over the past few years relative to Onshore Funds has made them a highly sought after investment opportunity (Offshore Funds, generally speaking, have outperformed Onshore Funds since the advent of the new Millennium) …so much so that most of the world’s major Investment Houses now list Offshore Mutual Funds as part of their product range.

 

Many Offshore Fund Managers however, for legal reasons, restrict investment in such funds to qualified, so-called sophisticated investors (persons with a net asset pool of $US2million or an annual taxable income of no less then $US200,000).

 

If, like most people, you don’t fit into this category of investors an Offshore Company can be established as a vehicle to invest into such Offshore Funds. How so? In short, the Offshore company raises investment capital via issuance of paid up shares to (or perhaps via borrowing money from) you, the owner/client. Funds so raised are used as the company’s investment capital, deployed in the purchase of shares/units/interests in the preferred Offshore Funds.

 

The ways in which Offshore Companies can be used for trading operations are many and varied. Some of the more popular activities conducted from Offshore include service based activities such as advertising, marketing, sales and distribution, agency companies, as well as the sale and distribution of information-based products.

 

The key to the successful use of Offshore Companies for such activities centres on the service being seen to be provided from Offshore. For example sales and other commercial agreements need to be carefully drafted to ensure that the bargain is seen to have been struck, and preferably supply generated from, Offshore. Additionally, it is vitally important to ensure that the Offshore Company is not seen to be operating from onshore. For example it would not be advisable for the Offshore Company to have a permanent physical office in any of the countries where its customers are based.

 

An example of an effective offshore Trading Operation is a Debt Factoring Company. In such a scenario a business, or perhaps a commonly owned group of Companies, might set up offshore its own Debt Factoring Company. Debts owed to the business/group might then be bought by the Debt Factoring Company at (say) 80% of what is owed to the business (the discount in return for supplying an immediate cash flow). The Debt Factoring Company proceeds to collect 100% of the debt. The outcome being that that 20% of the amount owed is accumulated Offshore, tax free.

 

Another example of a Trading Operation that can work well from Offshore is a Mail Order business. Commonly Mail Order businesses never actually physically take supply of that which they sell. Hence there is no need to keep inventory Offshore nor to rent costly storage space. Solely a registered Office and Nominee Director is required. The mail order advertisement, direct mail or newsletter/ad email would be sent from offshore. Provided the order is seen to be taken from Offshore, the difference between the cost and sale price can be received Offshore, tax free.

 

People involved in contract based work have much to gain by establishing and then contracting their services to an Offshore Recruitment Agency. When taking on a new contractor, the Employer simply contracts the services of the Offshore Recruitment Agency to source and supply appropriate labour, rather than hiring the contractor direct. The agency then subcontracts, in much the same way as an onshore Employment agency, the job to its own, onshore based, contractor.

 

The ability of the Offshore Recruitment Agency to assume responsibility for non-wage obligations, such as the employee’s retirement and savings plan, means the employer often no longer needs to worry about payroll taxes, superannuation liabilities, workcover expenses or Fringe Benefits Taxes.

 

Moreover, the introduction of VAT/GST in most countries has meant that many companies and businesses can benefit from exporting (or importing) services that would otherwise be obtained from onshore

 

Offshore Outsourcing is now big business. The proliferation of e-Commerce has meant that many services can now be obtained from any part of the globe. Hence businesses can effectively outsource many functions that would otherwise be obtained from costly local contractors without worrying about VAT/GST and other such taxes normally liable onshore.

 

Similarly, the ability to sell services offshore may allow businesses to obtain the benefits of tax credits without having to incur a VAT/GST liability.

 

Offshore structures have commonly been used by Intellectual-Property-rich companies as a means of protecting their innovations. In addition, industrial enterprises frequently exploit their technological innovations by transferring the IP to an Offshore Licensing Company. Royalties and other sums may be received by the Offshore Licensing Company from related Companies in a nil tax environment thus reducing the total tax burden.

 

Whilst legislative changes in certain countries have made such a practice more challenging, effective means of holding and exploiting intellectual property through Offshore structuring still exist, provided that the appropriate structure can be put in place.

 

As well as tax effectiveness, the Intellectual Property asset becomes very much bullet-proofed by being owned from Offshore. It is harder for competitors to sue and attack the ultimate cash generation mechanism producing the sales.

 

Divorce and business bankruptcy rates are now at a record high in many western countries. People wishing to protect their assets from marriage breakdown or Bankruptcy can effectively do so by establishing an Offshore Vehicle designed solely for the purpose of taking possession of assets.

 

If structured carefully one may be able to transfer ownership of assets without transferring complete asset control or access. If, however, one becomes concerned that divorce or bankruptcy is looming (or even before that time), the Offshore Vehicle may take complete control of the assets, thus shielding the assets from Family Court division and/or creditor’s claims.

 

In addition to this, an Offshore Vehicle of the kind described can provide investment growth potential as well as reductions in future tax liabilities.

 

 

 

Due to complex legislative requirements in many countries traditional Employee Share/Option Plans and Employee Bonus Plans are becomingly increasingly costly, both to establish and administer. An Offshore Employee Fidelity Structure or Welfare Fund can provide benefits similar to an Employee Share/Option Plan or an Employee Bonus Plan but at a fraction of the cost.

 

Traditional structures are greatly limited in terms of where funds can be directed (often invested in the company’s shares only). Offshore Superannation/Retirement Funds retain much of the flexibility to operate outside of the onerous regulations of most local superannuation schemes. Hence an Offshore Superannuation/Retirement Fund may invest in a wide range of investments including high yield/risk investments (such as Currency Trading, Bonds, Derivatives). As an Offshore fund is able to pursue a far wider range of Investment options, the fund can be utilized as a high returning investment vehicle for both employer and employee alike, in addition to benefiting them by their receiving tax-preferred treatment on retirement or termination. Tax deductions may also be available for payment of contributions to non-resident Superannuation/Retirement Funds.

 

 

 

An International Will structure can be created in such a way that the individual’s estate is passed to an Offshore Beneficiary. The Beneficiary can be established for the sole purpose of benefiting certain nominated persons, without giving control of the assets to those persons. That way, you can be sure that the value of your assets is not wasted after you pass away.

 

Such an arrangement can be highly flexible in that the transfer of assets through the execution of a will doesn’t preclude you from enjoying the use of those assets whilst you’re still around!

 

Additionally by nominating an Offshore beneficiary to receive your estate you automatically make it very difficult from a practical perspective for disgruntled family members, in-laws or creditors to ever get their hands on your estate. This is because pursuing an offshore entity in a foreign court tends to be a very costly and rather uncertain business.

 

 

 

Specific Offshore Entities can be utilized for arms-length financing for a company or group of companies. The key to the success of such a venture is to ensure that the Offshore Structure is established within the current commercial and operational objectives of the company.

 

Companies may create effective Offshore structures to enable them to become self-funded, without local laws limiting the amount that can be claimed at home by way of tax deductions for loan fees or interest payments.

 

Commonly, funds are passed to an Offshore entity that, via an Offshore Finance Company, on-lends those funds to the onshore resident company. In certain situations it is even possible to claim a tax deduction for the initial payment of funds overseas as well as for interest payments made to the Offshore Finance Company! Careful planning, documentation and Professional assistance is required for the success of such a venture and clear commercial objectives need to be obvious from the outset.

 

 

 

Businesses looking to maximize tax deductions for insurance premiums or to access insurance premiums at wholesale rates often choose to set up their own “Captive” Insurance Company Offshore

 

In this scenario a business will insure its risks with its own Offshore Captive Insurance Company (at the maximum premium cost considered commercially realistic). The Offshore Insurance Company then will commonly reinsure those risks at a lower rate elsewhere, with the difference captured in a nil tax environment.

 

An additional advantage is that surplus funds can be invested by the Offshore Insurance Company in a far wider range of investments than it would be entitled to consider in an onshore environment. Hence an Offshore Insurance Company has the potential to make considerably more from its investments than if it were registered onshore.

 

Commonly the returns on the investments themselves will be received, accumulated and even reinvested Offshore, completely tax free.