Banker Middle East speaks to Philip Cernik, Chief Marketing Officer at Friends Provident International, who highlights the plusses of offshore banking for consumers
Investing offshore is one of the best things that an expatriate can do. Yet in recent years, offshore banking and investing has earned itself a mixed reputation. We’ve seen numerous articles reporting on scandals such as the ‘Panama Papers’ or the ‘Paradise Papers’. This has called into question the suitability and legality of offshore jurisdictions when it comes to international finance. The spotlight is trained on several offshore centres and understandably so. The industry seems to have been portrayed as the sole preserve of investors whose focus is to hide wealth and evade taxes.
However, there are many legitimate reasons that people and businesses may wish to invest at least some of their wealth offshore. Unfortunately, these legitimate reasons are often overshadowed by negative attention which is, for the most part, undeserved. The UK government, for example, has successfully blurred the lines between tax avoidance, which is legitimate, and tax evasion, which is illegal.
The view of some commentators is that this is motivated purely by the opportunity to generate more revenue for the UK’s own domestic coffers and to offset a large budget deficit. It is perfectly legal to invest offshore as a UK resident, and as a resident of many other countries, but investors must remember that not declaring their gains on their tax returns could be an offence.
Most established offshore jurisdictions are subject to some of the most rigorous financial regulatory regimes in the world and offer many advantages for international investors. For small countries, offering incentives to foreign investors is a good way of boosting the local economy. It creates jobs in the financial services and associated sectors and encourages inward investment for the country. From an international banking and life insurance perspective, several companies operate from the Isle of Man (IoM), and fall under the regulatory auspices of the IoM Financial Services Authority (FSA).
The IoM FSA maintains keen oversight on the banking and finance industry that operates from the very small island in the middle of the Irish Sea. Understandably, they are keen to protect the island’s reputation as a well-established international financial centre, known for its high standards of regulation. There are several reasons customers and corporations should consider using an international bank, in a jurisdiction which offers similar protection to banks based in the IoM. Offshore investing and banking offers both life company investors and bank investors many key benefits.
ENHANCED INVESTMENT OPPORTUNITIES
Offshore investing means customers can access an almost unlimited range of investment opportunities. These opportunities may not necessarily be available in the market in which the customer resides. This is due to the different regulatory approach taken by offshore investment providers.
Whether investing in a bank deposit account, an investment platform or an international life insurance product, investors also benefit from the jurisdiction’s beneficial tax status. This means their investment returns are not necessarily encumbered by the tax regime of either their home country or the country where they are ‘tax resident’. One under-utilised fiscal tool is the portfolio bond, where bankers wrap existing and new investment portfolios in a life insurance policy to improve the customer’s tax outcome in their home country.
DIVERSIFIED CURRENCY OPTIONS
Offshore banking and investing offers access to a wide range of currencies in which accounts can be denominated. This makes it easier to move money within and between accounts, and to invest in securities denominated in other currencies, with minimal administration and at low cost. This can also be beneficial for those with financial commitments in more than one country or currency.
As an investor, if you decide to keep your money in an offshore bank based in a well-regulated jurisdiction—such as the IoM—you will enjoy a level of investor protection which means you can rest assured that your capital is secure to a certain extent. As mentioned previously, financial services companies based in offshore jurisdictions like the IoM are highly regulated and transparent, adding an extra level of security and peace of mind for customers’ accounts. You only have to think about what has happened in Greece in recent years, with people unable to withdraw even small amounts of cash from their own accounts, to see the benefits to customers of keeping at least some of their wealth offshore.
Isle of Man life insurers offer a greater level of protection to investors, in the event a life company is unable to meet its liabilities. A total of 90 per cent of any investment is protected and will be paid to investors in the event a life company fails. The scheme operates globally, providing protection to policyholders no matter where they reside.
Offshore banks are aware of the importance of offering an around-theclock service to clients in various time zones around the world. With this in mind, they invest heavily in technology to provide their customers with 24/7 access to their accounts, 365 days a year through online banking platforms.
These services are also highly personalised, which results in an outstanding level of customer service. The superior level of service offered by these banks is especially important for expatriates with international financial obligations, and their automated systems mean customers can take advantage of investment opportunities as and when they arise. And of course, for internationally mobile expatriates, being able to maintain an account in a single offshore jurisdiction, regardless of how many times they relocate, can prove very beneficial.
Offshore centres are ideal locations for restructuring ownership of assets. Individual wealth can be transferred to trusts or to an existing offshore company. This is particularly useful for individuals who can transfer some or all of their assets from their personal estates to an entity that holds it outside of their home country, meaning their assets are ring-fenced.
Many offshore jurisdictions have the complementary benefit of privacy legislation and have enacted laws for strict corporate and banking confidentiality. There are serious consequences if these laws are breached, for example if a bank were to disclose a customer’s identity. This confidentiality could be vital for big name investors, if they are buying a large number of shares in a listed company for example. Having their identity protected can offer them a significant financial advantage. They can keep the public at large in the dark about what they are investing in, rather than have the stock price increase due to lots of people jumping on their bandwagon. Despite the mystique surrounding offshore banking and investment it does fulfil a useful purpose and it isn’t deserving of the poor reputation it has suffered in recent years.
Do not overlook the suitability of an offshore account for yourself or your customers. In addition to the better-known tax advantages of offshore accounts, there are many other tangible benefits to investing and banking offshore, especially for the expatriate market.