Your Offshore Guide

TAX PLANNING

First, when you invest offshore, it does not necessarily mean you pay less tax or no tax at all. Take the example of someone investing in an offshore fund located in an offshore centre where there are no income or gains taxes. What this means is that the fund will not be taxed, which enables it to grow tax free and pay dividends gross.

This compares with most onshore investment rules that tax the fund at source. This tax-free growth should then feed through to increased offshore fund performance. However, as an investor in the fund, it is quite possible you may personally suffer a tax liability depending on where you are resident and your current tax status.

So using an offshore centre does not absolve you from paying tax. What the use of an offshore centre does give you, apart from tax-free growth of your investments, is tax planning opportunities that should lead to paying less tax.

Generally speaking, you will not incur a tax liability until you either cash in your investment or repatriate it onshore, and this is where the planning comes into the equation.

The extent of freedom you have for tax planning and the amount of tax you save depends on a number of factors.

These factors include whether you are an individual resident in your normal country of residency, an expatriate, a business owner or someone planning to live abroad sometime in the future.

Each country has its own tax rules and regulations relating to offshore investments. For example, US citizens have little offshore tax planning opportunities as they are taxed on their worldwide income irrespective of whether it is repatriated or cashed in. Anomalies arise due to the fact that some countries such as South Africa and Hong Kong assess tax on a source basis only, while most Western countries assess tax on a residence or citizenship basis, or a combination of all three. However, it is not within the scope of this website to outline each individual country's tax rules relating to investing offshore. It is important, therefore, that you seek guidance from your own tax authorities and consult with a qualified tax planner or financial adviser with tax knowledge. It addition, before you take advantage of any offshore tax breaks, you should fully utilise any onshore tax breaks to the full.

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