Offshore investing may sound promising. In fact, offshore jurisdictions hold a big portion of the world’s assets and investments. However, always remember that higher profits come with higher risks. Below are several reasons why you should reconsider offshore investing.
The most obvious challenge in offshore investing: money
Despite all the advantages that investors may get through offshore investment, it still going to take a lot of money. Starting an offshore corporation, settling with legal fees, registering corporates and accounts for the investment, every step needs money. Investopedia warns investors will need at least $100,000 to start an offshore investment.
Other considerations often left out from the equation is the presence of attorneys in the whole settlement. Attorneys can act as consultants related to estate planning and protectors of your assets. They also deal with wills or the whole business succession ordeals. It is not so often more money will end up spent on these professionals’ fees, commissions, and travel expenses.
Tax havens and all the shenanigans
The tax havens benefits sure are promising for investors. On the contrary, a lot of home countries suffer a loss in tax revenue due to investors shifting to offshore investing. The U.S. government is one of the countries to realize this. To minimize tax loopholes caused by offshore investing, the U.S. government then has expanded the laws related to offshore investment.
One of the attempts done by the U.S. government is the implementation of the U.S. Foreign Account Tax Compliance Act (FATCA). According to the law, citizens are to report any foreign account holdings owned annually. Regardless of the current country the citizens reside in, every U.S. citizens are obliged to follow the law.
In addition, the U.S. Internal Revenue Service (IRS) now requires residents to pay taxes for their worldwide income. Any form of an attempt to avoid U.S. federal income tax on capital gains through offshore investment may get the investor prosecuted for tax evasion.
It is as much important to keep in mind that the law controlling offshore investment differs from one to another country. The Organization for Economic Cooperation and Development (OECD) and the World Trade Center (WTC) for example, have laws that control banks’ duty to report information on their foreign customers. However, the strictness of the law varies depending on the country. Make yourself updated to the rules to make sure your investment stays safe and legal.
Also read: Why You Should Consider Offshore Investing
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