Which Offshore Financial Centre is the Best?

The main reasons why expats use offshore financial centres are: potential tax efficiency, flexibility, convenience and providing a secure location for funds. If an expat lives in a country with a less than secure banking environment or where the local currency is extremely volatile, then having a secure offshore account can make sense.

Indeed, the introduction of the EU Savings Directive and the general increasing desire for countries to share tax information has led to a tightening of legislation in offshore financial centres. The traditional use of offshore centres as a way of enabling better tax planning – and even tax evasion – has all but fallen away.

However, there are still many offshore financial centres that can give expats a safer and more beneficial control over their assets. The UK and US are not high on the list for most people when it comes to considering the offshore financial centres. Typical locations synonymous with low taxes we think of are jurisdictions and nations such as the British Virgin Islands, the Cayman Islands, Switzerland and Monaco.  But in actual fact, some of the best offshore financial centres are far less glamorous…

Jersey, Guernsey and the Isle of Man all provided a better level of security they offered expat depositors after the credit crisis to protect them if something should go wrong.

In the event of a Jersey bank failing, The Jersey Depositors Compensation Scheme provides compensation of up to £50,000 per person at each Jersey banking group. This means a £100,000 deposit in a joint account would be completely covered.

If a Jersey bank does fail, then an interim payment of £5,000 will be made to the affected depositors within seven working days, with the balance of compensation arriving within three months.

The Guernsey Banking Deposit Compensation Scheme is similar to the Jersey scheme, with the amounts covered and timing of payments in line with each other. Both also have the total amount of compensation available to depositors capped at £100m in any five-year period, with compensation reduced pro-rata if claims breach this level.

The Isle of Man Depositors’ Compensation Scheme also has a maximum cover of £50,000 per person per bank that is in default, but again, if you have a joint account you are both able to claim up to £50,000.

You have to make a claim for compensation from the DCS within six months of the bank being declared in default. An interim payment is usually made to depositors after 28 days.

The Isle of Man has excellent client privacy laws, which ensures it is chosen time and again as one of the best offshore financial centres for those seeking taxation shelter for their personal and business affairs.  At the same time, the Isle of Man manages to keep the European Union and the Organisation for Economic Co-operation and Development happy by signing up to legislation that means serious crimes such as money laundering can be investigated if they are believed to have taken place within the jurisdiction.

Gibraltar has a variety of favourable tax rules – no wealth tax, no capital gains tax, no tax on investment income and no inheritance tax – making it a favourite destination for a number of family offices.

The Gibraltar Deposit Guarantee Board (GDGB) will pay 100pc of the qualifying deposits with a bank that has been declared in default up to a maximum of €100,000 or the sterling equivalent. If the claimant has any insurance policies that would cover the deposit or receives payment from other deposit guarantee schemes, these will be deducted from the total. This makes it one of the more generous schemes in the UK overseas territories.

Monaco and Andorra are both popular with high net worth individuals who want to pay no income tax whatsoever.  If you are wealthy you can move to either location and legitimately avoid all personal income tax.

The Bahamas also levies no personal income tax and has no CGT or IHT in place.

However, as the sharing of information between different jurisdictions has improved, the benefits to having assets offshore have become more limited thanks to legislation such as the EU Savings Directive (ESD) which allows for the application of withholding tax.

The directive requires many nations within the EU and third part countries to automatically exchange information or withhold tax on interest bearing investments and accounts held by investors who reside outside the nation where the money is invested.

The ESD applies to the Channel Islands, Isle of Man and Gibraltar. The aim is to ensure that citizens of one member state do not evade taxation by depositing funds in another.

Other exceptional examples of offshore financial centres that offer investors and business types tax friendly policies, security and privacy, but which also adhere to the guidelines laid out to fight tax fraud, include the likes of Singapore and Hong Kong. These have both benefited from an increase in inward investment since the ESD came into force.

As neither Singapore or Hong Kong have signed up to the directive, those who wanted to ensure their privacy remained intact favoured the locations for their business and many have moved significant amounts of money to these particular offshore financial centres.

Among the strongest offshore jurisdictions for trusts are Belize, Nevis and the Cook Islands. Belize and Costa Corporate Services Limited have been selected by LaingRose due to their history of successfully and diligently providing trust management that is both viable and secure, while allowing beneficiaries to operate effectively.  Notwithstanding, we do allow our clients to make their own choices of trustees and jurisdictions.

Offshore trusts may accept the transfer of assets in the form of cash, stocks and shares, property, businesses, gold, art and so forth. Such assets will be assigned to the names of offshore trustees as soon as they are transferred to the trust. You retain the authority to change trustees as the ultimate protector for the trust. Nevertheless, it is generally left to the discretion of trustees to make favourable decisions on behalf of beneficiaries. In order to ensure the proper set-up of trusts and thereby the protection of your assets, we recommend taking expert advice. Remuneration for trustees will naturally be a reflection of the extent of your requirements.

© LaingRose Ltd. 2020