The word offshore survives because it sounds like a strategy. In practice it means ‘not here’, and ‘here’ depends on who is speaking. A fund established in one country, held by a custodian in a second, advised from a third, for a person resident in a fourth, is a normal modern holding. Calling it offshore does not add a tax analysis.
Which piece is outside your home country?
Fund domicile is where the fund is established. Custody is where the assets are safeguarded. The account provider is who you contract with. Your residence is where you may be taxed. These can all differ. A change of residence can make a previously domestic account ‘offshore’ to you without the account moving an inch. The questions that follow are about reporting and about whether the firm still wants you, not about a new identity for the shares.
Tax and reporting do not stop at the water
Countries commonly tax residents on income and gains wherever the asset sits, or they tax particular foreign holdings under named rules. Information is also exchanged between authorities more often than the brochures of twenty years ago implied. This article will not say that a structure is reportable or that it is not. It will say that ‘offshore’ is not a synonym for invisible, and that an adviser who implies otherwise is a reason to leave the meeting.
When the location is a real question
Location matters for which law governs the fund, which investors it may accept, what information you receive, and what happens if a firm fails. Those are practical reasons to read domicile and custody. They are also reasons a holding can be awkward after you move: the fund may no longer be offerable to you. Ask before you need to sell in a hurry.
Offshore describes a location, not a virtue
In ordinary speech, offshore investing means holding an account, a fund or a company in a country that is not where you live, often one with a particular legal or tax regime for non-residents. The word is used for ordinary internationally distributed funds and for arrangements that are anything but ordinary. Ask what, exactly, would be offshore in the proposal in front of you: the fund’s domicile, the custody bank, the adviser, or a company you would own. Those are different facts, and they have different consequences.
A fund domiciled in one country can be sold to investors who live in another, and it can still be taxed in the investor’s hands under the investor’s rules. The domicile does not switch your tax residence off. Anyone who suggests that an offshore label, by itself, removes tax, reporting or inheritance rules is simplifying past the point of usefulness. Ask a qualified adviser how the specific structure is treated in the countries that may have a claim on you.
Ask who holds the assets and who you complain to
Custody, the manager and the adviser can be three firms in three places. Ask which one holds the assets, which one you instruct, and which regulator you would write to. Ask what reporting the firm will give you, and what reporting you may still have to do yourself. If the answer to the second is ‘none, because it is offshore’, treat that as a claim to test, not as a finding.
Costs, lock-ups and the ability to leave should be in the documents. So should the currencies. Read those pages before you read the brochure about the skyline. Keep the prospectus or the terms, and the note of what you were told about tax. If you cannot get a clear note, do not fill the gap with the word offshore.
A practical checklist
- Name the fund domicile, the custodian and your residence separately.
- Ask how your residence taxes this holding.
- Ask what is reported, and to whom.
- Check you can still hold it after a move.
- Read costs, including any bond or wrapper around the investment.
- Walk away from secrecy as a selling point.
Questions to ask
- Where is the fund established, and where are the assets held?
- Can a resident of my country buy and keep this?
- How is it taxed where I live?
- What information will be reported?
- What are the charges for the wrapper as well as the fund?
- What happens if I need to sell?
Common mistakes
- Hearing ‘offshore’ and hearing ‘no tax’.
- Buying a wrapper to own a fund you could have held more simply.
- Ignoring whether the firm accepts your new country.
- Confusing privacy with non-disclosure.
- Choosing a jurisdiction because a dinner speaker liked it.
WiT Access provides general information and comparison resources. Nothing on this website constitutes financial, tax, legal or investment advice. Always consider obtaining advice from an appropriately qualified professional.
