When you think of investing, what is the first thing that comes to mind? I’m guessing you thought of stocks and bonds right away. You may have also thought about real estate, bank accounts, and commodities. But I’m going to guess that one form of investing you didn’t think of was putting money into an offshore investment. Investing in an offshore fund is basically when an individual puts their money into an investment account in another country.
While you may think that only the super-rich use this type of an investment, most anyone can invest in an offshore fund. In fact, putting some of your funds into an offshore investment can be an effective way to diversify an investment portfolio. While most typical 401k and IRA plans in the Unites States do offer a range of foreign investment funds, the choices are fairly limited. However, offshore investments give you access to far more choices from across the globe.
Often times offshore investing is seen as a way to illegally dodge taxes, but the reality is that most of these investments are perfectly legal. The biggest advantage of offshore investments is that they are taxed at the home-country’s tax rate. For example, if you have an offshore account in the Cayman Islands, you are taxed at that country’s rates rather than your own country’s rates. While tax rates in the US top out at 35%, rates in popular countries for offshore investments can be as low as 0%. In addition, the investment institutions on those countries have experience in working with people from all over the world and can help structure your offshore investments to best suit your personal goals.
The regulatory requirements in countries housing offshore investments is also considerably more lenient than in most countries, which allows the fund managers to invest in a wider range of industries and businesses than what can be found in most mutual funds.
In addition to everything else, holding funds in an offshore account makes it much easier to relocate to a foreign country, which is becoming a much more popular retirement option than it was in the past. The cost of living in many countries is far less than in the United States, and medical care and other quality of life issues are quickly becoming just as good. Holding your investments in an offshore account means moving to another country will not be a financial nightmare.
There are many factors to consider when making an offshore investment decision, so make sure you do your research before jumping into anything.
4 comments
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Canadianbudgetbinder
January 17, 2013 at 1:46 am (UTC -4) Link to this comment
Interesting. So if you have money in an offshore account and it gets taxed in that country you can’t get taxed in the country you live in as well on the same money as that would be like getting taxed twice. Is that correct?
Justin
January 17, 2013 at 10:12 pm (UTC -4) Link to this comment
I know that with corporate taxes, they aren’t taxed on foreign income until they actually bring the money back to the home country. At least that’s how the US tax code works. I can’t say with 100% certainty if personal income taxes are treated the same way, but I think that’s part of how it works. I do know that on personal income tax, you receive credit for foreign taxes paid.
John S @ Frugal Rules
January 17, 2013 at 12:08 pm (UTC -4) Link to this comment
I did not know it was taxed at the home country’s rate, though it makes complete sense. I can see why, then, it would be a good way to further diversify.
Lynne
January 22, 2013 at 7:17 am (UTC -4) Link to this comment
Very informative post. It is really a must to study every investments that are available in the market and choose the best one that you think will benefit you a lot in the end.