Offshore/Onshore: the dance of decision
In today’s uncertain world, investing offshore has become a popular choice for capitalising on advantages offered outside of South Africa. There are many offshore companies that offer a range investment opportunities that are fiscally sound, time-tested, and, most importantly, legal.
Advantages of offshore investing include: tax benefits, asset protection, privacy, and a broader range of investment opportunity.
Disadvantages include: increasing regulatory scrutiny on a global scale, and high costs associated with offshore accounts.
Today, offshore investment in the context of retirement planning, is an important component in your strategy. It allows for true diversification. Even with a locally diversified portfolio, you are dealing with funds and annuities that are rand-based – and that can carry an element of risk considering the political and socio-economic issues the country has to continually deal with.
Points to ponder
- While destinations once known as ‘tax havens’ have become far more regulated and report-focused, there are still some who offer worthwhile tax incentives to foreign investors. Attracting investors can increase the economic activity within that country – a valuable strategy for countries wanting to not only attract outside wealth, but also build job opportunities within an environment that is short on resources.
- Offshore investing is not beyond the means most investors – not necessarily only for the wealthy. However offshore investing is popular for restructuring ownership of assets. Through trusts, foundations, or an existing corporation, individual wealth ownership can be transferred – although if tax avoidance is the purpose, the laws are continually changing and one must keep abreast of latest developments.
- The element of secrecy previously associated with offshore investment has been largely eradicated through worldwide changes in tax laws in many countries. However, banking confidentiality is still an element sought by investors, and privacy with regard to client and shareholder identity is still an aspect of offshore investment – more for security purposes than tax evasion. But it is important to note that offshore laws will allow identity disclosure in clear instances of drug trafficking, money laundering, or other illegal activities.
- Offshore accounts are more flexible, giving far greater access to international markets and major exchanges. There are also many opportunities in developing nations, especially in those beginning to privatise sectors formerly under government control. However, more defined and restrictive laws have closed tax loopholes, and investment revenue earned offshore is now a focus of both regulators and tax laws.
- The Organisation for Economic Co-operation and Development (OECD) and the World Trade Organisation (WTO) also have rules that require banks to report information about their foreign customers. But each country complies with these laws in different ways and to different degrees.
Offshore investment and retirement
Offshore accounts are not cheap to set up. They often require a minimum investment, or ownership of property in the country concerned. However, there are many affordable choices, properly vetted and monitored by professional financial advisors, and more than half the world’s assets and investments are held in offshore jurisdictions. Many well-known companies hold investments in offshore locales. So your first rule is to choose a reputable investment firm which specialises in international investment, and who can assess, explain the costs, as well as legal and tax implications.
Any decision on how much of your retirement savings should be based offshore needs to be made in the context of how you’re planning to spend your retirement. If you travel a lot or have family overseas, or are planning on retiring in another country, chances are that basing a proportion of your retirement savings offshore will be prudent. You’ll have access to that money when and where you need it.
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