INVESTMENT

The advantages of off-shore investments

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Two of the top reasons that South African investors are given to encourage offshore investments are that going offshore diversifies your portfolio and that it gives you access to sectors you could never find on the resource-heavy JSE.

“While those are not reasons to be treated lightly, the best reason to invest offshore is the savings you can make on taxation,” says Andrew Taylor, Vice President of Henley & Partners, the global leader in residence and citizenship planning and an expert in international investment.

“There are several countries that are traditional tax havens, such as Switzerland, the Isle of Man and Jersey,” says Taylor, adding that “increasingly countries such as Malta, Dubai, Singapore and Hong Kong are positioning themselves to be the new magnets for the high net-worth individuals (HNWI) of Brazil, China, Russia, India and South Africa. These countries look set to replace traditional wealth destinations as the new capitals of wealth management and have also become popular offshore investment destinations.”

Over the years, offshore investment has had an unfairly negative reputation, courtesy perhaps of the sensational manner in which it is sometimes written about.

However, for the financially astute investor, offshore investments represent an essential channel through which to diversify one’s investment portfolio. This also offers the added benefit of allowing the individual or company to spread the risk of their investments. Investing offshore is a way of safely keeping your money (either as cash, as a physical asset or as part of a financial instrument) in a country or region other than the one that you call home. For the accountants, the real clincher is that, as you are not a resident of said offshore destination, you probably won’t pay tax on the growth of your returns.

South Africans looking to invest in offshore destinations are legally allowed to transfer their assets to legal entities via trusts, foundations and existing corporations. By transferring ownership on paper, investors can safeguard their wealth and property from domestic issues and seizures. This is a particular benefit to businessmen who have made their fortunes in developing nations, where political and economic uncertainty is often on the horizon.

Malta is a relatively affordable European tax haven that has been making international news over the past six months as a new hot country in the investment spotlight, thanks to significant strategies and incentives put in place by the Maltese government. The remittance of capital gains into Malta is tax free, there is no inheritance tax, wealth tax or annual property tax and, although corporate taxes are around 35%, companies can get most of that refunded. This package of benefits has made Malta a new target for individual and corporate investors, as they may be able to increase their profit margins when they base their operations in Malta.

Super wealthy Russian, Indian and Chinese investors are increasingly following their money offshore and showing interest in residence or citizenship programs that allow them to invest in property, grow their assets and take advantage of being global citizens at the same time.

Individuals from the BRICS countries (Brazil, Russia, India, China and South Africa) have become increasingly important investors in developed economies, in particular EU countries. As a result, a growing number of South African HNWI (in large part driven by market-seeking motives and cross-border mergers and acquisitions with their BRICS trading partners) are also taking advantage of the chance to move some of their operations to the European arena.

“Many people from the BRICS countries conduct business abroad, but they are restricted by the passports they hold and cannot engage in visa-free international travel like their European or Western counterparts,” says Taylor. “They are keen to secure their riches and improve the quality of their lives. And many of them are looking to do it overseas. They base their decisions to move abroad on the pros, cons and conditions of the countries that offer the most attractive residency or citizenship programs in return for their investments.”

If South African investors need to regularly network with their BRICS counterparts, then being able to travel around Europe easily without encountering any unnecessary hurdles caused by visa regulations is vital. As with all aspects of business, what matters is who you know, and the kind of networking you do and the type of events you attend can provide a major boost to your business if it is located in the right area. Being well-connected to like-minded investors can only have a positive and significant effect on selecting and adding value to investments, and can help to develop and grow your business.

The favourable tax rates in an offshore country are designed specifically to promote a healthy investment environment that will attract outside wealth. For a tiny country like Malta, with a small population, attracting investors can dramatically increase economic activity.

Caribbean islands such as St. Kitts & Nevis, as well as Antigua and Barbuda, also offer tremendous opportunities, and there are several locations within the Caribbean which companies can use for offshore asset protection. Benefits such as tax relief can ensure that the interest on offshore investments and offshore bank accounts is paid without tax deductions, and reduces your tax liability within the country in which you reside.

“As developed markets in Europe and elsewhere recover from the worldwide economic crisis that hit at the end of the last decade, diversification of investments is appealing to those who want to exercise their options and hedge against currency risks, for instance. Anyone involved in shipping, for example, may find it advantageous to form a company in Malta and then use that company to own a ship or other maritime vessel, in order to make use of Malta’s registry of ships, which is the largest in Europe and seventh largest worldwide,” says Taylor.

“There is a growing breed of individuals who don't have the time to be in one country for more than four months at a time, and one of the areas Henley & Partners specialises in is facilitating the registration of International Business Companies in the major offshore jurisdictions. Our residence and citizenship programs at Henley & Partners, such as the Malta Individual Investor Program (IIP), are aimed at just such cash-rich, but time-poor people, who only spend a few months in any particular country at one time.

“Maltese citizenship may be granted to qualifying individuals and families who have held resident status in Malta for a minimum period of 12 months and who qualify under the very strict due diligence regime. All individuals and families applying to the Malta IIP must make a significant contribution to the National Development and Social Fund established by the Government.

“For such investors, alternative citizenship is increasingly important as an effective tool for international tax planning. As a national of two or more different states, you generally have more planning options open to you, and also enjoy more privacy in banking and investment,” says Taylor.

Simon Lewis

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