Your Offshore Guide

What is an offshore center

Before looking at the factors behind selecting on offshore centre, it is important to clarify what exactly an offshore centre is.

An offshore financial centre is a jurisdiction that offers a low or no tax regime, as well as a high level of confidentiality. Sometimes called tax havens, these jurisdictions exist around the world and offer a 'neutral' or safe haven for investments.

Additional offshore benefits include no exchange control restrictions and a wide variety of tax efficient vehicles such as trusts, companies and investment products. It was the search for a neutral home for investments that became the catalyst for the modern offshore centre. At the time of the Second World War, social and political turmoil in and around Germany, Russia, and South America forced many people to move their assets to the stability of neutral Switzerland.

Not only was Switzerland neutral, it also provided the anonymity of secret, numbered bank accounts, there are some changes made after 9/11.

Following the end of the war, the need to raise taxes to fund massive reconstruction programmes encouraged many people to continue using the relatively low taxed Switzerland. Switzerland's success in offering a low tax and confidential home for assets seeking political and social refuge led to a number of jurisdictions declaring themselves as 'offshore centres'.

The number of offshore centres in existence has increased dramatically. Comprehensive details of a selection of these offshore centres are listed in this page.

In order to gain a competitive edge, offshore centres are specialising in banking, trust and company formation or offshore funds. For example, offshore financial centres include six of the world's 12 top banking centres involved in corporate finance and individual investments. These include Cayman Islands, Luxembourg, Hong Kong, Switzerland, the Bahamas and Singapore.

Luxembourg deals mostly in offshore funds and is now the fourth largest investment funds centre in the world. The Cayman Islands is another big offshore fund centre. The total value in offshore funds is now more than US$1 trillion and is beginning to rival the US domestic mutual fund industry in size.

Along with the tax breaks, freedom from excessive investment restriction and regulation is the reason why banking, insurance and investment have become important pillars of the offshore industry. Offshore centres frequently permit diversification into investment activities not allowed at home. This means they can often use more innovative investment structures such as derivatives or loan facilities or access more exotic investment markets. While this can increase the risk, it is also designed to enhance returns. Such a `flexible investment system' is not to be confused with a slack regulatory regime, which allows companies of dubious background whose prime purpose is to target unsophisticated investors with poor offshore investment plans. While this no doubt still goes on, reputable offshore centres have very comprehensive regulatory regimes and the newer centres are continually improving their regulations.

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