LECTURE 1

INTRODUCTION TO OFFSHORE

DEFINITION
The term offshore is widely used in financial planning circles Offshore has no legal definition??? Generally speaking: An offshore centre is one which offers concessionary (the rates of taxation are lower than those prevailing in onshore centres) rates of taxation to individuals, corporate entities and trusts.

OFFSHORE CENTRES
The majority of offshore centres are islands They have their own legal systems, the autonomy to introduce their own laws and the power to introduce their own systems & rates of taxation. Such centres can therefore implement legislation which is designed to attract foreign investors.

FINANCIAL SERVICES PROVIDED BY OFFSHORE CENTRES

Banking Trustee services Company incorporation and company management Investment management Custody of investments Creation and administration of investment funds Captive insurance Pension funds Ship registration However, not all the centres provide all of these services

FIDUCIARY SERVICES
It is the provision of fiduciary services which have sparked the growth in the offshore sector. What is a fiduciary service? one where the service provider owes certain duties and has certain duties and has certain responsibilities to the person on whose behalf he is holding the assets. The three most commonly quoted examples are trustee services, banking services and company management services Trustees and directors are considered to act in a fiduciary capacity as they owe duties and responsibilities to the beneficiaries.

BENEFITS OFFERED BY O.C

Taxation offshore centres impose only a low or in some cases a nil rate of tax on accounts which have been created locally for the benefit of nonresidents. Client confidentiality in an offshore centre the reporting requirements are much less burdensome that those onshore. Some centres, such as the Bahamas and the Cayman Islands, also offer legislation which makes the release of client information a criminal offence.

BENEFITS OFFERED BY O.C

Exchange Controls Exchange controls restrict the flow of assets in a few onshore locations, that is illegal for cash/assets to be transferred out of the country. - Exchange controls are not imposed in offshore centres on assets which are held for international clients. - Funds can therefore flow freely into and out of O.C.

BENEFITS OFFERED BY O.C

Minimal reporting requirements The regulators in most offshore centres will not require information on the clients or investors who are conducting business in that centre. Instead they will rely upon (and indeed expect) the service providers in their centre to perform thorough checks on the suitability and integrity of the clients on whose behalf they perform or provide financial services. This self policing can appeal to many clients, especially those who are interested in remaining as anonymous as possible.

BENEFITS OFFERED BY O.C

Local expertise Most offshore centres boats a high standard of local expertise in respect of their service providers. (Mauritius in offshore banking) Indeed in majority of centres there are now a good spread of international banks, trust companies, legal firms, accountants and brokers, making the servicing of the clients needs much easier.

BENEFITS OFFERED BY O.C

Legal system The vast majority of offshore centres has first class legal system which based their legal systems on English common law principles but has added local provisions which are designed not only to suit the local region but also and more importantly, to attract investors and international business. Through their legal systems, offshore centres can provide an opportunity for international clients to protect their assets from claims or legal actions which may arise from foreign countries. (for example, a foreign country might have the power to confiscate assets of its citizens and to obtain legal ownership of those assets. However, if those assets were held offshore )

BENEFITS OFFERED BY O.C

Regulation Financial services in onshore centres are regulated to a greater extent that financial services which are provided from offshore centres. - However, a growing number of offshore centres now impose some degree of regulatory control over their finance sectors, e.g service providers need to be licensed to certain types of activities such as taking deposits, providing investment services and acting as trustees.

CHOOSING A JURISDICTION
COMMUNICATIONS - The majority of offshore centres have excellent fax and telephone links and also have sophisticated computer technology to assist with the preparation and flow of information. - Most centres are also serviced by excellent air and/or sea links which can also be an attraction to clients and their advisers.

CHOOSING A JURISDICTION
Geographic distance - To some clients, the appeal of an offshore centre will be how far away it is from their home country - There is a perception that with distance comes greater confidentiality. This may be true in some cases but should not be relied upon.

CHOOSING A JURISDICTION
Attitude of local government - Centres with supportive governments are seen as a more suitable & better long-term choice. - Governments awareness of the importance of their finance sectors in relation to the future growth and development is important: - For example, this could take the form of capital expenditure programmes (perhaps to improve the local infrastructure or communication systems) or the introduction of legislation requested by service providers (designed to make the centre more attractive to foreign investors).

CHOOSING A JURISDICTION
Political and economic stability - Civil or political unrest might be a risk attached to the safety of the assets which have been placed there. - Similarly, in a weak local economy, unemployment might be a problem which could affect the availability of a suitable workforce. - The general mismanagement of the jurisdictions financial affairs could affect its overall reputation.

CHOOSING A JURISDICTION
Language it is advisable that a centre is chosen which uses the same languages the client (and possibly the clients adviser). - In view of the number of centres and their geographic spread it should be possible for a client to find a jurisdiction which speaks his language. Cost this is often a consideration but should not be the main criteria on which decision is based. The cost for the provision of financial services has decreased over the years. This is mainly a result of the increase in the number of O.C and the resulting increase in the number of service providers.

CHOOSING A JURISDICTION
Reputation of the centre - There are a great many offshore centres with many similarities between each location. Hence making a choice can be difficult. - The reputation of a particular centre can therefore play an important part in the selection process. A client will be less likely to place his assets in a centre which has suffered recent economic or political problems or worse still, a financial scandal. The older and more established offshore centres often benefit.

CHOOSING A JURISDICTION
Same time zone The ability of the client to pick up the telephone and speak to his offshore service provider at a reasonable hour can be an important factor in the selection process. - As a result a centre might be required which is situated in the same time zone as the client. - This may still mean there will be a choice between centres in that same zone but at least the search will be narrowed down. Climate There are clients who will include climate of the jurisdiction in the Caribbean because they like the sunshine!