Offshore Investing, Backed by Expertise.

‍What are the key considerations when investing offshore?

The world is getting smaller as its residents become increasingly global and interconnected.

The same can be said for how we invest our money; with easy access to foreign investment markets, investing offshore is a viable option for those looking to diversify and externalise their wealth.

As an advisor, the reasons for investing offshore are well known and include opportunities to access stable currencies in jurisdictions that have strong regulatory regimes and established legislation.  Other advantages include diversification, reduced risks and the opportunity to access an almost unlimited universe of investment options.

Whilst the reasons for offshore investing are clear, the considerations to deliberate when providing your clients with an offshore investment product or service can at times be less clear.

There are seemingly numerous factors to contemplate, such as legal frameworks, cultural compatibility & regulatory compliance, however, what are the essential considerations when looking to invest offshore?

Capital International have identified six key considerations:

As an international investment platform provider with more than 25 years in business, we are well aware of the challenges of investing offshore.  

Servicing intermediaries in over 100 countries, we used client feedback and the knowledge of our 200+ staff to determine these six considerations.

Furthermore, we determined that these six considerations have a clear ranking level of importance, much like Maslow’s hierarchy of needs.  And just like Maslow, we have used a pyramid, mapped in their order of relevance, to portray these considerations.

1. Jurisdiction

The foundation to investing offshore is safety and security, which is provided by the jurisdiction where the assets are domiciled.

A strong regulatory framework and political stability are essential, and the jurisdiction should have a longstanding global presence within the investment sector as well as a reputation for strong client asset protection and service.

2. Taxation

The next aspect to consider are the tax implications of the products or solutions used when externalising wealth.

Potential taxes are paid where the assets are domiciled as well as where the client is resident.  To avoid the risk of being exposed to double taxation, it’s essential to consider tax-neutral jurisdictions and products and services that can provide tax advantages according to where your client is resident.

3. Emigration

We mentioned previously that the world is shrinking, and its people becoming more global, and it’s therefore vital that the financial solutions provided are globally applicable.  This ensures that, should your client, or their dependents emigrate, that there is no need to exit their current investment strategy and you, as their advisor, are able to retain their business despite their global wanderings.

4. Probate

When it comes to investing offshore, it’s important to consider the potential impact of probate, a cost which raises itself as an issue when heirs or executors seek to take control and distribute the wealth from a deceased client’s estate. This is because probate may be required to complete the administration of the estate and for the transfer of ownership from the deceased to the heir to take place.

While trust and company structures, as well as offshore life assurance policies can offer some relief from both the issue of probate and situs, they may come with drawbacks. The potential disadvantages include restricted investment choice, additional costs, an additional layer of communication and additional servicing complexity.

5. Situs

In law, the situs of property is where the property is treated as being located for legal purposes. Property is not just physical property but also investments, including shares, some collective investment schemes and structured products.  

Investments incorporated in the United States, or in the United Kingdom, are considered situs assets and as such will attract inheritance tax (IHT) in the UK and federal estate tax (FET) in the US. This is commonly known as situs tax.

With possible solutions of placing assets into an offshore endowment life wrapper or an offshore collective investment scheme, both these options have several drawbacks.

Situs can not only create unnecessary tax liabilities on a person’s demise, but it may also create complex international tax reporting during a person’s lifetime, particularly where the assets are held in a trust.

6. Costs

Although a product may deal with the probate process or provide a tax advantage, the pinnacle of the pyramid, and the most important consideration is the cost involved in providing an investment solution to your client.

Whilst multiple layers and complexity tends to add additional costs, simplicity is prudent and should ensure the best option for your client

What next?

Navigating these six considerations is an essential step in efficiently managing your clients' offshore investments.  As is finding an investment platform provider that works closely and collaboratively with their intermediaries.

Capital International offers the ultimate suite of investment options; from our international investment platform, specifically designed to empower advisers and their clients, through to our managed bespoke portfolios, we have solutions to suit a wide range of client types and investment needs.

We work closely and collaboratively with a broad spectrum of professional firms and advisory businesses, building trusted and transparent relationships, making us the perfect partner for investors looking to take their client’s investments offshore.

Contact us to discuss any questions you may have about these considerations or about Capital International’s investment platform.

“In any given moment we have two options: to step forward into growth or to step back into safety.”

― Abraham Maslow

‍Disclaimer: The views, thoughts and opinions expressed within this article are those of  the author, and not those of any company within the Capital International  Group (CIG) and as such are neither given nor endorsed by CIG. Information in  this article does not constitute investment advice or an offer or an  invitation by or on behalf of any company within the Capital International  Group of companies to buy or sell any product or security or to make a bank deposit. Any reference  to past performance is not necessarily a guide to the future. The value of  investments may go down as well as up and may be adversely affected by  currency fluctuations. CIG, its clients and officers may have a position in, or  engage in transactions in any of the investments mentioned. Opinions  constitute views as at the date of publication and are subject to change.

Capital International Limited is a member company of the Capital International Group and is licensed by the Isle of Man Financial Services Authority. Capital International Limited is a member of the London Stock Exchange.