Expat eyes drift offshore

Offshore Financial Centres (OFCs) are jurisdictions, usually self-governing, which because of their low tax regimes, have specialized in providing commercial services to corporations and individuals, whether or not they are normally resident in that jurisdiction.

The better-known offshore financial centres are small and sparsely populated countries or islands, and are typically very prosperous.

These centres often have specialist areas of finance for which they are known. Luxembourg, for example, is a renowned domicile for SICAVs (société d’investissement à capital variable) and unit trusts.

Fiduciary, trust and offshore company formation are sought out in the British Virgin Islands (BVI), Mauritius or the Seychelles. We have seen Gibraltar and Malta establishing themselves as the dominant jurisdictions for QROPS ( Qualifying Recognised Overseas Pension Scheme).

And, of course, other jurisdictions are popular for corporate and personal banking, as well as investment, such as Switzerland, Isle of Man and the Cayman Islands.

Interestingly, the United States, which has been critical of the tax breaks offered by offshore centres, actually harbours its very own tax-haven. Because of its tax-friendly laws, the US State of Delaware is home to over half of all publicly traded corporations in the United States and 60 per cent of Fortune 500 companies.

The number of OFCs has grown in recent years, and today there are nearly 100 OFCs spread around the world, with new centres are emerging all the time. Like Tunisia, for example. Africa’s first offshore centre, the US$3 billion (B108.38 billion) Tunis Financial Harbour development is expected to take advantage of its strategic position on the Mediterranean Sea to become the bridge between Europe and developing Africa.

The main benefit of keeping your money in an offshore centre usually relates to taxes, but they are not open to everyone. You must be deemed a “non-resident” of your home country for tax purposes in order to legitimately establish a base in an OFC. If you spend the vast majority of your time in Phuket, or have multiple countries of residency with favourable taxation systems like Thailand’s, you probably qualify.

For those Phuket residents who do spend time in their home countries, they must ensure that they are not spending sufficient time there for their government to continue to deem them a tax resident of that country. For example, the UK has a residency test which looks at the ties you still have to Britain; most other countries still go by the old 183 days rule.

So if you are a non-resident for tax purposes, what are the best and safest offshore centres to use? Based on security, political stability, and confidentiality it is difficult to compete with the UK’s Channel Islands (Jersey and Guernsey), and the Isle of Man. These centres have investor protection schemes in place to protect your money which are equivalent, if not superior, to the assurances offered by most onshore jurisdictions (and certainly better than those in most other OFCs). All the institutions you can do business with are major institutions, with assets in the hundreds of billions, but to offer you an added layer of security, investments made on these islands are held by a third party trustee or custodian in a segregated account. In the case of the Isle of Man, a separate protection scheme has been established by the regulators to further protect your capital.

It is important to note that the Channel Islands and Isle of Man are British Crown Dependencies, but not part of the UK. This means their foreign representation and defense are handled by Whitehall, but they remain self-governing territories.

Whereas the UK has a diverse economy, a very large proportion of the GDP of these islands is based on financial services. Jersey and Guernsey have small tourist industries; the Isle of Man hosts the TT races every year; all three have a lot of sheep; but banking and finance are very much the staples of their economies. That means they will always do everything necessary to protect their already strong reputations.