Expat guide to offshore investment

Expat guide to offshore investment

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Overwhelmed by the number of offshore investment products? Expatica's expert Russell Hammond explains the basics for investing abroad and using offshore investments for portable retirement planning.

With an ever-growing number of professionals opting for a perpetually transient lifestyle, the desire to invest in an international or ‘offshore’ manner is becoming increasingly popular. Offshore investment can offer several benefits for expats living and working abroad, and hence is increasingly being considered by expats as a viable investment solution to match their international mobility, as well as a solution to portable retirement planning.

Benefits of offshore investment for expats

The key driver of popularity for offshore investment is that many expatriates want to avoid the situation where they have ‘bits and bobs’ of investments scattered around the world. They lose track of what is invested where and are, often, presented with logistical issues when attempting to gain access to, or manage, the investment after they leave that particular place. Offshore investing irradiates these irritations. 

Furthermore, the tax efficiency of the international investment centres is often seen as an ‘added bonus’ for those individuals who make use of these investment areas.

First, let’s look at what the term ‘offshore’ does not mean. It does not mean investing in a small, shady, semi-legal island state somewhere where the rules are informal, at best, and they could be here one day, gone the next. Far from it. Today’s offshore centres represent the very best in international wealth management:

  • High levels of statutory consumer protection.
  • Investments are completely geographically portable and manageable irrespective of where you move to or from – they follow you.
  • Often offer a much wider range of investment funds and different investment choice.

 

Examples of these premier investment centres include the Isle of Man and Channel Islands, or EU Member States such as the Republic of Ireland and Luxembourg. All of these jurisdictions benefit from stable governments, strong regulatory controls and measures to protect policyholders.

Why invest offshore? Wealth management

When somebody decides to make use of an international investment centre for their financial needs it is to get capital, which they already have, working harder for them and thus generating a return. Or, it is about redirecting a proportion of their income, every month, to work towards building a fund of money for the future to address future financial demands such as retirement or child university costs.

With inflation running at 3 percent plus and banks only returning 2 percent, it is imperative that you have your money working as effectively for you as possible. Otherwise, you are in effect losing money each year.

What to invest offshore

We have answered the question, as to why we would invest offshore. The next question is what do we invest into offshore?

When an expatriate wishes to invest a lump sum of money, more often than not they will make use of what we call an offshore investment bond. This is the most popular form of offshore investment where you can make use of a wrapper in which you can hold a variety of investment funds, such as unit trusts and open-ended investment companies (OEICs). Because the wrapper is based offshore, within an international investment centre, you have a huge range of different funds to choose from including:

  • Guaranteed return funds
  • Managed Futures Funds (these funds can make money whether the markets are going up or down)
  • Stock Market Linked – Developed and Emerging Markets
  • Commodities
  • Government and Corporate Bonds
  • Structured Products (this is where you give away some gain for certainty of the outcome – so a capped, but guaranteed return for example)
  • Plus many, many more.

 

It is the job of the financial adviser to recommend, in consultation with you, which of the above, and in what proportion, are right for you. This is based upon, amongst other things, your attitude to risk and volatility, investment time horizon, investment experience and age.

Offshore investment  
Offshore investment and international retirement planning: Portable retirement plans

The offshore areas are a great way for someone to save for his or her retirement, particularly for expats living and working in several different countries. Regarding where and when you will retire, this is very much dependent upon your situation at the time. It is often difficult to plan where and when one will retire, and as such, the flexibility that is a feature of international investment means that we do not have to make this decision until we come to retire.

Offshore retirement plans are geographically portable so they are unaffected as you move to different places in the world. The plan stays in the same place, while you move around, all the time growing tax free. It can be the perfect solution to any expatriate's long term retirement investment needs.

How the retirement plan would work
Basically, you sit down, with your financial adviser, and work out how much you need to save each month to hit your target retirement fund and then invest this money, each month, into your plan. This money is then further divided across a variety of different underlying funds.

Downside to offshore investing


There used to be one big downside, in particular, with offshore investing. This basically was the then tedious process of communicating with the offshore investment centres. Based in overseas jurisdictions it used to involve long distance phone calls and or a note tied to the leg of a carrier pigeon. OK, it never actually involved that! However, it was a big headache with the time differences etc. Herald the information age and the internet. Now, everything is done online so managing your money in the Isle of Man is no more difficult than managing your money with your local, high street bank.

Tax advantages to offshore investing


With offshore investing the tax advantages are more about tax control rather than tax avoidance. What this means is that because your investments are based in a tax-neutral investment area, you are normally able to decide where and when you pay tax on your investments. For instance, imagine that you have been paying EUR 500 a month into an offshore retirement investment plan for 20 years. Now in year 19 of the plan, you are looking forward to gaining access to your ‘nest egg’ and putting your feet up during your retirement. You are now resident in Ireland and have accumulated some gain payable on your retirement investment plan. So, what can we do to limit our tax liability? Well, what you can do is establish your tax residence elsewhere and in that place cash in the investment. For example, you decide that you will take a consultant’s job in Holland for a few years, just to ‘top up your final retirement fund’, and thus not put your feet up just yet... As the Netherlands does not impose Capital Gains Taxes on investments, you could cash in your investment while you were resident there and upon returning to Ireland, would have availed yourself of any Irish tax liability.

In short, offshore investments offer a highly appropriate solution to the transient expatriate who wishes to invest and make financial plans, for his or her future, without the inconvenience and disruption of needing to re-establish a fresh plan every time they should move jurisdiction. The offshore plan will move with you.

Russell Hammond / Expatica

Description: C:Usersmarina.penevaDesktopmarinaexperts - database, email templates etcexpert photos and suchRussell_Hammond.jpgRussell Hammond is one of Expatica's financial expert and an investment specialist and senior financial adviser advising clients worldwide. Updated 2014 by Russell Hammond.

 

 

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6 Comments To This Article

  • Steve posted:

    on 19th June 2015, 07:45:43 - Reply

    We can arrange investments for expats through UK FCA regulated investment managers and private banks.

    FCA regulated companies have high levels of regulatory compliance, recourse for retail investors through an ombudsman scheme and are protected by the financial services compensation scheme (FSCS).

    These are not offshore life assurance bonds as noted above. They are on an investment platform where the annual platform fee is only 0.3% and the investment manager fee is typically between 0.5% and 1% per year depending on the manager.

    This puts the total cost at a maximum of 1.3% per year for a fully managed investment account. With a life company bond adds another 1% and then usually underlying fund fees of 1-1.75% per annum. Some advisors even charge their own management fee, typically 0.5%. These are all additional layers of charges that investors do not need to pay and wouldn't be paying in an onshore, regulated environment where commissions are transparent.

    This is not to say that life assurance products are not a good solution in certain circumstances, but merely that they are typically sold by offshore advisors purely because they pay upfront commissions and not because they are in their client's best interests.

    With our solutions, there are no tie-ins and no hefty commissions as with the offshore products. Therefore, this set up also allows for penalty free access.

    For larger investments (typically GBP 250K upwards) we can arrange for a bespoke discretionary portfolio management service. For smaller investments we can arrange model portfolios based around our clients risk profile.

    These investments are usually direct into stocks, bonds, Gilts, ETFs (exchange traded funds) and ETCs (exchange traded commodities). This means that the investments are highly liquid and far cheaper than investments into mutual funds (no underlying fund manager fees as noted above).
    We can also arrange savings plans starting at $300 per month that offer immediate, penalty-free access and trading accounts for individuals wishing to trade for themselves.

    We currently have tie-ups with managers such as Coutts, Quilter Cheviot, Redmayne Bentley, Julius Br, Henderson Rowe to name a but a few.

    Non-UK residents will still gain tax benefits (usually pay no income or capital gains tax) and these investments can also be placed into a trust to help with legacy planning and asset protection.

    Most offshore financial advisors do not offer these products because they cannot earn an upfront commission (typically 5-12%) from them. We are trying to separate ourselves from the crowd and offer our clients a far fairer and better solution that most people are completely unaware exists.

    For more information please contact s.mitchell@globalinvestments.net or check out our website www.globalinvestments.net

  • David posted:

    on 19th February 2014, 06:58:10 - Reply

    Onrtradex.com in the Cayman islands is pretty good. Does physical gold and had a low minimum which was good for me.
  • Ian posted:

    on 28th August 2013, 12:13:30 - Reply

    The above recommendation would not be at all useful if you are interested in sheltering assets in an inert offshore environment. Unfortunately, these are all life assurance or capital redemption bonds, and are only available from regulated and authorised life assurance and investment firms. The hefty fees pay for investor protection and compliance. Brokers charge their own fees and are only worth paying if they can prove they are going to be of benefit.
  • Simon posted:

    on 27th May 2013, 23:22:49 - Reply

    May I recommend

    Stuart Langan

    He uses Trading Platforms with stop loss protection and not life company wrappers with fixed terms and hefty fees.

  • J Salmon posted:

    on 14th September 2012, 12:40:56 - Reply

    My brother-in-law went thru' a company called covenant international management. Reckoned they knew their stuff pretty well and were honest, etc. Don't quote me on this but I think he said he didn't pay anything for their services, as they were brokers and they received, like, a broker's fee or something from the financial companies where they'd lodged his money. It's something definitely worth thinking about I reckon. I'd def consider it if I managed to get a long term contract abroad somewhere.
  • chris muirhead posted:

    on 30th May 2012, 09:04:04 - Reply

    nice report. do you know who the best offshore brokers are to use? i heard about internaxx - any others ? guess balance between cost and depth of product available.