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Investing in Offshore Jurisdictions: Offshore Brokerage Accounts

 

Table of Contents:

 

What is an Offshore Account?

An Offshore account usually refers to a foreign or international bank account or investment account. An offshore account can be used as an investment account such as brokerage account or trading account that holds and trades assets or as a personal private bank account that primarily holds assets. 

An offshore investment account allows an individual to invest, hold and trade stocks, bonds, futures, FX, securities or options etc... as well as engage in a variety of transactions to-and-from different accounts allowing a high volume of deposits and withdrawals per day.

A financial entity, offshore company or limited partnership is the preferable means of using the account so as to remain separate from the individual person.

The revenue earned from an offshore investment, as well as all transactions and gains are held under the offshore entity rather than an individual giving more layers of protection and security.

Offshore Brokerage Account

An offshore brokerage account is in simple term an offshore structure used as an investment account to hold and trade financial instruments.

What is unique of an offshore brokerage account, is that because it is located “offshore” it benefits from all the opportunities provided by being in a tax neutral destination where capital gains can be reinvested tax-free. 

An offshore brokerage account used in conjunction with an offshore company or LLC makes it so that the offshore accounts are owned by the company rather than the individual.

No intermediaries, private bankers or brokers required. Though often a professional trader acts upon the clients behalf.  An offshore brokerage allows you to trade in international markets using a tax neutral offshore entity.

There are a number of offshore brokerage accounts the most popular being in the Cayman Islands, BVI or Belize.

An offshore brokerage account acts as a trading account designed as an high volume account, where the capital is transferred regularly as apposed to an investment fund where the capital might be held for months and years.

 

Different Types of Brokerage Accounts

There are three main types of brokerage accounts. Online brokerage accounts, Managed brokerage account, and Retirement accounts.

Online brokerage are for those who would like to manage it themselves. Usually done entirely remotely through an online platform this allows for the individual to act as a broker and manage their own trades and accounts.

A second alternative is to higher a firm or broker to assist in trades for you. There are many different types of firms and brokers who can make investment choices for you or can act as per your instructions.

And a retirement account is a long term investment such as a Roth or IRA which fall under different tax obligations that regular investment accounts, but funds are usually required to be held for a minimum 5-10 years.

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Differences Between an Offshore Brokerage Account and a Domestic Account? 

There are any number of reasons why people choose to establish an offshore brokerage account, whether that be for confidentiality, security, future planning, or wealth protection. 

Offshore investing or an offshore investment account is just like domestic account with numerous added benefits such as privacy, multiple foreign currency holdings options, tax reduction possibilities and access to investment funds and financial services not available to domestic accounts. 

What usually prevents people from choosing a foreign jurisdiction to invest in, is the lack of knowledge and financial expertise. There is some trepidation in stepping in international investments as it seem far removed. However, it is only due to misinformation that makes offshore investing seem so obscure. 

Initially, there are some hurdles to jump through, after getting an account established a broker can be assigned to your account, making it just like a regular domestic investment set-up. 

The primary difference between offshore investment accounts and domestic ones, is that offshore accounts have higher minimums USD 50,000-100,000 and some accounts its USD 1 million, and account higher fees.

However, if you are looking for an international investment strategy then the advantages of higher returns, and interest rates are well worth paying the extra associated fees.

Many investment accounts are closed to American citizens, as many companies choose not to go through registering with the SEC and all the regulatory hassle that comes with it.

However, a corporation or foundation-owned brokerage account in a jurisdiction like Panama would give you access to many brokerage accounts and investments that would otherwise be off-limits.

Manny of the highest performing mutual funds, also known as unit trusts, are not available to U.S. investors; however, when you invest through an offshore brokerage account owned by an offshore corporation or trust - then everything changes.

While some offshore banks offer their own in-house brokerage accounts; except for a few notable exceptions, in certain private management institutions for high net worth clients, these in house options are inferior in service; you are much better going with a dedicated brokerage investment firm. 

The brokerage firms with whom we assist clients in opening up accounts have all the latest online trading platforms available, that can be access 24/7.

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Privacy and Confidentiality in Offshore Accounts

It is often assumed an offshore account opened under the persons name will be protected by the offshore jurisdictions privacy laws and confidential banking policies. However, the problem is that every time you decide to make a transaction, your name will be tied to the account

To ensure your personal details remain private, a limited company, partnership or trust can be used to open up an offshore investment account. 

Though you remain the signatory on the company who owns the account (which can remain confidential through our third party signatory services) and known to your bank, your account will be anonymous to the world.

However, gone are the days of anonymous numbered accounts
. Any incoming or outgoing payment from the account will have a name associated with it on the bank-to-bank routing instructions. An investment account may remain totally private, or may remain partially private, depending upon your residence and its financial and tax laws 

Depending upon where you live and the tax laws in your country, will determine how public or private your account details will be. There a numerous tax sharing agreements that have seriously eroded privacy. That does not mean privacy does not exist, it just means it is not as private as it once was.

You must declare your account, if the laws in your country of residence requires it.

Offshore jurisdictions keep your details private, but due to Controlled Foreign Corporation (CFC) laws, Tax Information Exchange Agreements (TIEAs), and the Common Reporting Standard (CRS) scheme, if your country of residence is a signatory on any of the above laws then your details will be shared with tax officials and banking regulators. But will otherwise remain private to everyone else.

By using a company, foundation or trust, your personal name will remain off of any payment transfers, and will be limited to appearing only on the inter-bank payment instructions.

Though nominee and signatory nominee services can serve as an instrument to preserve account confidentiality as legal director powers are transferred onto nominee individuals.

Using a 'corporate shield' has many advantages that protect and keep ones personal assets secure, even if you only plan on using it for banking and investments.

The company or trust that holds the investment account becomes a separate legal entity with its own life and rights under law giving the foreign-based company strong asset protection features. Companies formed in jurisdictions, such as Panama, have corporate laws that ensure and protect the assets and names of non-residents who holding foreign accounts.

See our offshore banking guide for more specific information on opening bank accounts, including different types of individual accounts and the best offshore jurisdictions.
 

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Do Investment Accounts Offshore Have Any Advantages?

Opening an account in an offshore as apposed to 'onshore' jurisdiction gives you many advantages. It allows you too:

  • Diversify your investments and account holding in a number of institutions
  • Protects from unscrupulous litigation and lawsuits
  • Offers tax savings by establishing accounts in tax neutral jurisdictions
  • Gives access to international and regional markets which are off limits to certain domestic accounts, and
  • Has liberal regulatory environments

Investment Diversity

Diversifying your account portfolio across a range of countries and accounts is an important step in any wealth management strategy. Not only does it mitigate risk, but also allows access to developing regional markets and gives you a form of asset protection that comes only with having a foreign account. 

Having access to global securities markets anywhere in the world gives you access to markets that are growing at a much faster rate than the US or UK. Many developing or emerging markets is not uncommon to find yields at 12-13% without having to take on unnecessary levels of risk.

Having multiple accounts in several jurisdictions helps to account for currency fluctuations, gives you access to greater liquidity, and ensures that you remain profitable despite changes in the currency or economy of any one country.

Protect Yourself From Lawsuits

Having an international foreign account, protects you from unwarranted litigation, lawsuits and fraudulent claims trying to steal your wealth.

Accounts established in a foreign jurisdiction gives a second layer of secure banking laws and practices for your accounts. International banking laws protect those assets that otherwise would be vulnerable if they were held in the same country where you reside.

Structures that are incorporated in foreign jurisdictions are also used in the avoidance of forced heirship, as family estates are much better protected in laws outside the country of primary residence, and can generally avoid heavy taxes that come when inheritance is passed down.

Free From Local Taxation 

Offshore accounts, because they are located in low-tax jurisdictions, assets are able to be re-invested and - dividends, capital gains, and income received from the investment can be held without having to pay taxes locally.

A brokerage account can act as a very powerful asset protection mechanism and efficient tax structure as it is located in a tax neutral environment, and is located as a non-resident company.

Access to Regional and international Markets

An offshore brokerage account allows you to invest in international markets remotely, using online services and can be established in many places around the world, for investing in offshore stocks in developing markets, or in buying government bonds, dealing with Forex, futures, options, CFDs etc...

Open Regulatory Environment

Investment funds that are held in offshore countries have lower levels of regulations, and offer a broader range of investment opportunities and financial services that are not as heavily regulated. Offshore Mutual and Hedge Funds in the Cayman Islands, and Belize for instance have attracted wealth from across the globe because of its financial environment attracting over 40% of all worldwide funds.

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Understanding Offshore Investment Funds

There are any number of ways to structure an offshore fund. It all depends on: 

(1) the location of the investment fund
(2) the number or type of investors, and
(3) the nature of the investments the fund will be involved in.

Depending on what those three answers are, will determine the nature of the fund, whether it is an open or closed investment and which type of structure will be used.

Offshore Hedge Funds

Hedge funds are set up as offshore or onshore funds depending if the offshore structure is located outside the country of residence. Investors chose offshore financial structures because they offer (1) tax benefits (2) asset protection (3) privacy (4) wealth diversification.

Hedge funds are similar to mutual funds though they are usually close-ended and opened to only specific private individuals and companies. There are usually different regulations governing each type of fund depending upon the jurisdiction the Fund is established in.

British Virgin Islands (BVI) Hedge Fund at a Glance

BVI Hedge Fund main advantages: 

  • Sound legal system with modern financial and corporate legislation
  • Tax neutral system
  • No regulatory restrictions
  • No requirements to appoint local directors 
  • No need of a physical office
  • No local auditor requirements
  • Fast track options
  • Low start up and maintenance fees

Offshore Mutual Funds

Mutual funds provide investors with a wide range of choices in both passive and active managed investments. Mutual funds are regulated investment products that are open to any individual and usually are more liquid.

The offshore fund may be formed as an offshore company, partnership, or trust.

Offshore Funds ar used as a means to attract foreign capital into a country. Often smaller less developed countries offer offshore or international funds as a means of attracting capital by offering some benefits usually in the form of tax incentives. Offshore funds are usually head outside the US and are invested in by non-US persons and comics or US tax exempt colonies or Hedge Funds.

St. Lucia Private Mutual Fund at a Glance

A St. Lucia Mutual Fund main advantages:

  • Do not require a third-party administrator
  • Maximum number of 100 investors
  • Minimum required investment of US$50,000
  • Reasonable fixed fee arrangement that are not percentage based
  • No local physical office requirements
  • Supportive financial system
  • No local director requirements

Offshore Account Management

Professional Signatory Account Management is an option for those that do not want to be a signatory on a corporate, foundation or trust account and prefer to use a professional, such as a lawyer or accountant to act in a fiduciary capacity as some countries require extensive reporting of any accounts with which one has signatory control over; the penalties for non-reporting are high and are being enforced more aggressively in the wake of the UBS case. 

For many clients, the reporting of such accounts defeats the very purpose of having the offshore accounts in the first place. Those individuals who do not want to take the risk of non-compliance (again we recommend not take such risks) can use Professional Signatory Account Management Services, which provides some distance from the assets while still giving you the ability to make decisions on their deployment. 

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Freedom from Taxation: The Way Out

If you are truly seeking freedom from all taxation, the best solution is not only to move your assets, but move your residency. Even with the most sophisticated offshore structure, over many jurisdictions, accounts, nominee directors and trusts, you will still be inevitably tied to the high-tax country where you live and the laws that are dictated to you.

Perhaps a decade ago it was possible to effectively cancel your tax burden, however tax authorities, and information sharing agreements are making increasingly difficult to do so. Though if you live in the right destination there are more possibilities to properly structure your financials.

Moving your primary residence, (living less than 180 days a year) frees you from the local income taxation. And because taxation does not follow you, and ends where the border of the country ends, you are tax free. 

Depending on where you live, if you live in a territorial based tax system (which is the majority of the world, besides the US and Eritrea) then you are only taxed on income made within the territory that you reside- rather than on worldwide income.

Therefore all profits accrued from an offshore investment are free from taxation in your country of residence.

However each country has its own unique tax structure and foreign-income reporting requirements. It is important to find out what those requirements are for you, before you get started.

HOW TO OPEN AN OFFSHORE BROKERAGE ACCOUNT

If you are interested in opening a offshore brokerage account, there are a few things which will be required.

Generally you will need to provide:

  1. notarized copy of your passport and usually another form of ID
  2. proof of physical address (utility bill)
  3. Bank statement

*if required proof of funds (which includes a receipt or documentation where the funds originated from

Other requirements might include a professional reference letter or CV.

Disclosure

Please be aware that no client or other reader should act or refrain from acting on the basis of any matter contained within the Offshore-Protection.com website without first seeking appropriate legal or other professional advice concerning your particular circumstances. It is important that you be familiar with your legal, financial and tax obligations within your respective country as both corporate and tax law vary from jurisdiction to jurisdiction.