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Offshore investments: advantages and pitfalls

Offshore investments: advantages and pitfalls

Gulf News

Question: I’ve just moved to the UAE to take on an extremely well-paying job and, ever since I’ve arrived, I’ve been keen to learn more about the merits of offshore investing. Is this a sensible way to take my wealth to the next level? What are the pitfalls I need to be aware of?

Answer: Offshore investing can prove an interesting, rewarding and, potentially, lucrative option to help build your wealth.

Off-shore investment – or cross-border investment as it is often referred to – is a legitimate financial practice that can have significant benefits for investors when it is managed properly. Depending on your personal financial situation, it can offer a number of significant advantages as part of a broader wealth management strategy.

In essence, cross-border investment means deploying financial strategies that capitalise upon the benefits offered by different countries outside of your own home country.

There are a wealth of options for UAE residents who are looking to access products based in offshore financial centres such as the Channel Islands and the Isle of Man, including savings and investment products, international mortgages, and private banking services.

For many investors, the attraction of cross-border investment is that it moves assets to a country which offers higher rates of return or lower rates of tax, to increase the long-term return of those investments.

There is also the benefit of confidentiality: many offshore locations have strict rules regarding secrecy around assets. High profile investors often use offshore facilities to keep their identity secret during takeovers, for example, so that the market doesn’t become aware of their involvement and react accordingly.

It’s worth noting that today, offshore services have strict rules and guidelines to ensure that they are not used to cover global illegal activity. Anti-money laundering legislation is in place that requires solid proof of identity to ensure that assets are being transferred legitimately.

Finally, people often elect to invest in specific territories because they see opportunities for growth there, and wish to diversify their assets. Many investors look at developing markets and see that – as well as the incentives offered – the growth of the wider economy will increase the overall value of their assets.

However, there are reasons why you might choose not to go down this route. For one, you should take the advice of a qualified professional who specialises in this field, to ensure that your investments are in-line with the tax and investment regulations of your home country as well as those of the UAE.

For example, there are some government authorities that are clamping down on the tax advantages of offshore investments for citizens. You need the help of an advisor to ensure that your investment is in-line with existing rules and also that the return on your investment will be sufficient to make it worthwhile.

It’s also the case that off-shore investment is complex and has an element of risk. There are established destinations like the Isle of Man and the Cayman Islands which have a long track record as investment locations, and there are many reputable international firms which offer cross-border services. However – as with any investment – you need to be sure that your assets are being looked after.

Achieving this peace of mind – particularly for large or diversified investments – can require the help of lawyers, accountants and financial advisors who fully understand the rules of cross-border investment. Such support has a price-tag attached: some investors find that the cost of setting up cross-border investments – combined with the professional service fees of their counsellors – outweigh the financial benefits.

The bottom-line is that offshore investment has to feel right for you. Take time to discuss the options and – if you’re not sure – seek a second, professional opinion before taking the plunge.

R. M. Kumar is Director, Nexus Insurance Brokers. Opnion expressed here are his own and do not necessarily reflect that of Gulf News.