The term “offshore investing” refers to investment strategies that can help an investor capitalize on the benefits of investing in a jurisdiction outside of his or her country of domicile. It should be noted that when done correctly, offshore investing could be a completely legal way to reduce your overall tax obligations. Take a look at these four common strategies that can reduce your tax bill.
- Consider opening an offshore savings account. Offshore savings accounts aren’t just for the super wealthy. Now that many offshore accounts allow you withdraw money in multiple currencies, opening an account has never been easier. If you do have a significant amount of money you want to stash in a savings account offshore, keep in mind that you won’t be completely exempt from paying tax on the interest. In the UK, for example, the interest still must be declared as income on your self-assessment return. The difference is that unlike with an onshore account, the interest is paid gross without income tax being deducted. This can be a significant benefit to people who have pretty considerable savings, as it means that the account can roll up payments and earn interest on the gross. While you still will have tax obligations to meet, this ends up producing a better final payout.
- Buy offshore bonds. When you buy a bond, you basically agree to lend money to a company or government, receiving a fixed interest rate payment over a set term in exchange. Bonds are an excellent option for individuals seeking a regular, steady income stream, and they can be traded just like shares. Offshore bonds present a particular advantage, especially in the UK. It’s possible to roll up the income and dividends paid by the bonds into the wrapper, which means you only have to pay tax when you decide to cash the bond in. Many financial planners recommend offshore bonds for individuals who are moving from a low-tax regime to a country with higher taxes.
- Put assets in an offshore trust. If you’re worried about inheritance tax and wealth tax, you may want to explore the possibility of putting assets in an offshore trust. In the UK, for example, UK residents don’t have to pay inheritance tax on non-UK assets if they haven’t been settled in the UK for 17 tax years. As an added bonus, putting assets in an offshore trust can also help you avoid the onerous forced heirship rules of some jurisdictions, giving you more control over what happens to your assets once you pass.
- Create an offshore corporation. When you have a business in a jurisdiction with high taxes, it can hurt your bottom line. In this case, you may want to consider moving your business overseas to a more favorable tax regime. This strategy is especially valuable for U.S. business owners, as U.S. citizens don’t have to pay taxes on their first $100,000 of foreign-sourced income. U.S. citizens may also be eligible for tax deferment when it comes to offshore companies, meaning that instead of paying taxes on the money your business earns annually, you can reinvest that capital into the company. In this scenario, you will only need to pay taxes when and if you decide to sell.
Although offshore investment strategies can be incredibly valuable in helping you reduce your tax obligations, keep in mind that offshore investment isn’t necessarily right for everyone. You will need to carefully consider your personal financial situation and circumstances when determining whether to invest offshore and deciding how much to invest. And remember, when it doubt, it is always best to contact a professional for advice and assistance.
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