Offshore investment

Any investment that is not directly subject to the UK tax system. Offshore investments tend to be made in regions with low tax burdens, like Jersey and Ireland. The investments are subject to UK tax law when the funds are brought back into the country.

Offshore investment is keeping of money in a jurisdiction other than one's nation of residence. Investors may choose offshore investment to conceal or protect illegally acquired money from law enforcement in the investor's country; or take advantage of higher rates of return or lower rates of tax on return than offered by an investor's country. Places favoured by investors for low rates of tax are known as offshore financial centers or (sometimes) tax havens.

Tax is the driving force behind 'offshore', but for the great majority of well-off individuals considering offshore investment, tax is not directly an issue. They reside in high - tax areas such as the EU, USA, Canada or Japan, they pay taxes, and if they make 'offshore' investments, it is in pursuit of higher returns, and without any intention to evade taxes in home countries.

Money laundering, the metaphorical "cleaning of money" with regards to appearances in law, is the practice of engaging in specific financial transactions in order to conceal the identity, source and/or destination of money and is a main operation of underground economy. This is another cause of offshote investmenr.

Whilst there is no precise definition of what amounts to an Offshore Financial Centre (or OFC), the term is usually meant to refer to low-tax, lightly regulated jurisdictions which specialise in providing the corporate and commercial infrastructure to facilitate the use of those jurisdictions for the formation of offshore companies. Offshore Financial Centres are often (but not always) current or former British Colonies or Crown Dependencies, and often refer to themselves as offshore jurisdictions. Up until the 1980s, Offshore Centres were commonly referred to as "tax havens", although that phrase is not frequently used today.

An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages. These advantages typically include some or all of

strong privacy (see also bank secrecy, a principle born with the 1934 Swiss Banking Act)
less restrictive legal regulation
low or no taxation (i.e. tax havens)
easy access to deposits (at least in terms of regulation)
protection against local political or financial instability

There are a large number of Offshore Financial Centres (by some measures, there are more countries that are Offshore Financial Centres than not), but the following jurisdictions could be considered to be "market leading" jurisdictions for various reasons:

Bahamas, which has the largest number of registered vessels (the other key vessel registration jurisdiction being Panama).
Bermuda, which has the largest number of registered captive insurance companies, and the second largest domicile for offshore funds.
British Virgin Islands, which has the largest number of offshore companies
Cayman Islands, which has the largest value of AUM in offshore funds, and is also the strongest presence in the U.S. securitisation market.
Gibraltar, which, whilst not dominating the offshore market in any particular specialisation, retains a strong presence in most fields.
Jersey, which is a dominant player in the European securitisation market and the European REIT market.
Luxembourg, which is believed to be largest offshore Eurobond issuer.

While the term offshore bank originates from the Channel Islands "offshore" from Britain, and most offshore banks are located in island nations to this day, the term is used figuratively to refer to such banks regardless of location (Switzerland, Luxembourg and Andorra in particular are landlocked).

An economic forecasting company from the UK has been employed to help Guernsey prepare for major tax reforms.
This year the States will debate whether to abolish corporation tax in 2008 to keep the island attractive to offshore investment companies. But if the plans go ahead an estimated £48m will have to be raised through other taxes and charges. Oxford Economic Research Associates (Oxera) says it can complete its assessment by the end of February. It will report to a panel under the leadership of former Deputy John Roper. The company has previously advised Jersey on the same issue.

Although most Offshore Financial Centres originally rose to prominence by facilitating structures which helped to minimise tax, tax avoidance has played an increasingly smaller role in the success of Offshore Financial Centres in recent years. Although most Offshore Financial Centres still charge little or no tax, the increasing sophistication of onshore tax codes has meant that there usually little tax benefit to moving a transaction structure offshore.

A corporate haven is a jurisdiction with laws friendly to corporations thereby encouraging them to choose that jurisdiction as a legal domicile.

Critiscm of indsutry

Some say they industry can fuel gangsters and criminal society. Some say it takes away resources from a society that created wealth, and gives it to a low tax society that does not look after the vulnerable due to low taxataion. It can reward economies for not investing. For instance if one nation has an increase in taxes for an investment in producing soccer playing heroes, then a nation with lower taxes takes those heroes to it's clubs because it can charge lower taxes. You can argue the nation that is producing is being exploited by the nation that is not investing.

Offshore banking is associated with the underground economy and organized crime, through money laundering. Following September 11, 2001, offshore banks and tax havens, along with clearing houses, have been accused of helping various organized crime gangs, terrorist groups, and other state or non-state actors.
The existence of offshore banking encourages tax evasion, by providing tax evaders with an attractive place to deposit their hidden income.
Offshore jurisdictions are often remote, so physical access and access to information can be difficult. Yet in a world with global telecommunications this is rarely a problem. Accounts can be set up online, by phone or by mail.
Developing countries can suffer due to the speed at which money can be transferred in and out of their economy as "hot money". This "Hot money" is aided by offshore accounts, and can increase problems in financial disturbance.
Offshore banking is usually more accessible to those on higher incomes, because of the costs of establishing and maintaining offshore accounts. The tax burden in developed countries thus falls disproportionately on middle-income groups. Historically, tax cuts have tended to result in a higher proportion of the tax take being paid by high-income groups, as previously sheltered income is brought back into the mainstream economy . The Laffer curve demonstrates this tendency.
It may just be an added complication and you may as well stick with investments in the UK.

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