OFC History - Definitions
Definition of an Offshore Financial Centre
The actual term "offshore financial centre" is difficult to define. In fact, the very word "offshore" is in itself a misnomer in many jurisdictions like Luxembourg or Switzerland. Therefore, "offshore" is better described by what it is not, which is obviously "onshore". Onshore is the place where the investor is domiciled. So offshore will be any other jurisdiction where the investor is not domiciled.
An "offshore financial centre" is a jurisdiction, typically an island, state or country that specifically provides financial services to persons who do not reside in that jurisdiction.
The main financial services offered by an OFC are:
- Banking services.
- Trustee services.
- Corporate services.
- Captive Insurance services.
- Asset Holding Management and Administrative services (ie: Collective Investment Schemes such as Mutual Funds and Hedge Funds).
An ideal offshore financial centre will boast many of the following characteristics:
- low tax or tax free with regard to income and capital gains.
- a politically stable government.
- effective yet non onerous regulation.
- laws that are clear and administered by a competent judicial system.
- modern and reliable communications infrastructure.
- a broad choice of high quality and reputable professional service firms for legal and accounting requirements.
- the existence of a wide choice of reputable banks.
- geographical convenience and easily accessable.
- banking confidentiality and secrecy laws.
Why Go Offshore?
- Tax avoidance / planning. "Tax avoidance" is a legal activity where a taxpayer under the direction of advisors will manage his financial affairs to take advantage of all relevant legislation by utilizing reliefs, allowances, exemptions and loopholes in a lawful manner. "Tax evasion" on the other hand is illegal. It is a civil and criminal offence and involves the taxpayer hiding assets and / or failing to declare income or capital gains.
- Asset protection.
- Minimal reporting requirements and confidentiality.
- Quality legal system without oppresive regulation.
Small countries with limited domestic financial sectors may choose to promote offshore business and become an offshore financial centre for a variety of reasons. Advantages of doing so include generating income, creating employment and collecting government revenue through licensing and registration fees. In fact, the most successful offshore financial centres rely heavily on international business as their main source of revenue and economic activity.
The number of offshore financial centres is growing year by year. There are constant developments in laws and regulations in the world of offshore financial centres and it is a dynamic industry that is ever changing. Opportunities offered by individual jurisdictions are forever evolving. Meanwhile other jurisdictions are re-inventing themselves.
