Although offshore investing provides wide range of benefits for its users, it has several important disadvantages that one should take into consideration before engaging in offshore investing:
Stricter Tax Laws: developed countries and especially USA continuously mold their legislation to eliminate tax avoidance practices that arise with the use of offshore investing. Although the loopholes are still left that can guarantee fair yield, their number is decreasing rapidly and at some point such investing may not bring attractive profit. For instance, IRS in 2004 changed internal policy and started to tax incomes generated through offshore investment from the corporations as well as residents of US. (You check out the details in “International Taxpayer – Expatriation Tax”).
Sunk Costs: engaging in offshore investing operations inevitably requires setting up an offshore banking account. Besides depending on plans of an investor in most jurisdictions establishing offshore corporation may be required. The problem here is that such establishments are quite expensive. They are subject to excessive legal fees and fees associated with consulting services. Some countries set high initial capital requirements ($100,000-$1,000,000) or require investors to hold a piece of real estate that is also a painful burden for an investor.
To sum up although offshore investing may be quite profitable and bringing reasonable income, it cannot be a choice for small investors due to high sunk costs that not everybody can afford. Besides even if a small investor decides to make investment anyway, he/she must make good anticipation of his/her future incomes to be sure that initial sunk costs will be compensated.
Safety: there are several popular and secure countries for offshore investing, such as Isle of Man, Guernsey, Jersey, Bahamas, Cayman Islands, Bermuda and etc. More than fifty percent of all worlds’ investment assets are held in such offshore jurisdictions and invested locally. Although this is so, offshore investors should be careful while choosing specific company for offshore investing and the best strategy would be choosing reputable company with long enough successful operating record. It would be helpful to use consulting services of reputable advisor, accountant or lawyer that have experience in related matters. Such consultation is has costs and they are an addition to sunk costs discussed above, but they can provide real assistance and prevent investors from higher losses and investment failures. In most cases benefits generated from consultations are much higher than costs that arise from the usage of such services.
