CHAPTER 4: OFFSHORE FINANCIAL CENTRES (MBM1195B) (PAST SEMESTER QUESTION …
CHAPTER 4: OFFSHORE FINANCIAL CENTRES (MBM1195B)
PAST SEMESTER QUESTION
DECEMBER 2018 :strawberry:
a) Briefly explain the following types of institutions under the jurisdiction of offshore financial center:
i) International Business Corporations (IBCs)
ii) Insurance Companies
b) Elaborate any four (4) characteristics of offshore financial centers.
JUNE 2018 :strawberry:
a) Explain the following major destination of Offshore Financial Centres (OFCs)
JUNE 2018, JANUARY 2018, MARCH 2017 AND MARCH 2016 :strawberry:
Explain any 4 types of institutions under Offshore Financial Centres (OFCs).
JANUARY 2018 :strawberry:
b) Describe the following types of facilities offered by the Offshore Financial Centres (OFCs):
i) Offshore current account
ii) Offshore investment
MARCH 2017 :strawberry:
b) Offshore financial centers is a place where offshore activities take place. State the differences between offshore financial centres and domestic financialcentre.
OCTOBER 2016 :strawberry:
a) Basically, Offshore financial centres (OFCs) offer something that are peculiar to their existence including offshore current account and offshore saving account. Define these two accounts from the investors' perspective. Apart from that, they are many attractions that may encourage players to invest in derivatives. offered by OFCs.
List five (5) attractions of investing with OFCs.
b)Briefly explain the following types of institutions under the jurisdiction offshore financial centres:
i) Insurance Companies
ii) Offshore Corporations or International Business Corporations (IBCs)
MARCH 2016 :strawberry:
a) State five (5) functions of Offshore Financial Centres.
b) FOREX services are one of those facilities offered by Offshore Financial Centres. Identify any five (5) services available for FOREX transaction.
FACILITIES OFFERED BY OFFSHORES FINANCIAL CENTRES
Offshore Savings Account
:barely_sunny: Some ofshore savings accounts accept opening deposits of as little as USD 1 and should be denominated in foreign currency.
:barely_sunny: Someone may have to invest a minimum of USD5,000 or USD10,000 to open an offshore savings account.
:barely_sunny: The charges for operating an offshore savings account may be high.
Offshore Current Account
:fireworks: Depositors can use a debit card to withdraw money in either Dollar ($) , Euro , and sterling currencies for free , again helping to save on charges.
:fireworks: The ease of movement between accounts also means whoever can protect their money against currency fluctuations.
:confetti_ball: Converting money for a property.
:confetti_ball: Making regular payments in a foreign currency.
:confetti_ball: Making a foreign currency payment.
:confetti_ball: Managing currency risk.
a) The types of services offered including the following instruments:
:pencil2: Structured notes
:pencil2: Structured deposits
b) Other attractions of the OFCs' investment services may include:
:tada: No capital tax.
:tada: No tax on transfers.
:tada: No corporation tax.
:tada: No withholding tax on dividends or interest.
:tada: No exchange control.
TYPES OF INSTITUTIONS UNDER OFFSHORE FINANCIAL CENTRES
a) International Investment
Bank Deposits may not be subject to reserve requirements.
Bank transaction may be tax-exempt or treated under a favorable fiscal regime.
May be free of interest and exchange controls.
b) Offshore Banks
It maay be subject to a lesser form of regulatory scruitiny
Information disclosure requirements may not be rigorously applied.
c) Offshore Corporations or International Business Corporations (IBCs)
IBCs are limited liability vehicles in an OFC.
They may be used to own and operate businesses.
They can be used to create complex financial structures.
IBCs may be set up with one director only. In some cases, residents of the OFC host country may act as nominee directors to conceal the identity of the true company directors.
In some OFCs, bearer share certificates may be used. In other OFCs,registry of shareholders is maintained.
In many OFC, the costs of setting up IBCs are minimal and they are generally exempt from all taxes.
IBCs are a popular vehicle for managing investment funds.
Uniqueness of Malaysia, its OFC is under the Labuan Financial Services Authority (Labuan FSA ) as a singular regulatory body to spearhead and coordinate the promotion and development of Labuan as anInternational Business and Financial Centre (IBFC).
d) Insurance Companies
A commercial corporation establishes a captive insurance company in an OFC to manage risk and minimize taxes.
An onshore insurance company establishes a subsidiary in an OFC to reinsure certain risks underwritten by the parent and reduce overall reserve and capital requirements.
An onshore reinsurance company incorporates a subsidiary in an OFC to reinsure catastrophic risks.
The attractions of an OFC in these circumstances include favourable income/ withholding/capital tax regime and low or weakly enforced actuarial reserve requirements and capital standards.
INTRODUCTION TO OFFSHORE FINANCIAL CENTRES
:fire: OFCS as defined by Zorome (2007) are jurisdictions that provide financial services to non-residents on scale that is excessive compared to the size and the financial of their domestic economies.
:fire:The definition of an OFC is far less straightforward. At its broadest, an OFC can be defined as any financial centre where offshore activity takes place.
:fire:A more practical definition of an OFC is a Centre where the bulk of financial sector activity is offshore on both sides of the balance sheet.
:fire:OFCs offer significant tax and regulatory advantages as well as providing client from other countries with international banking services.
:fire:OFCs differ from ”onshore” banking in a way that the financial services offered are mainly for non-resident clients.
TWO REASONS WHY SOMEONE ASSOCIATES WITH OFCs :
. :explode:Privacy for personal/family business or political reasons.:explode:Try to keep funds separate from daily use in case of inheritance battles/divorce/personal bankruptcy : : :explode:Keep funds in a secure bank in a secure country
. :<3:launder money from criminal activities. :<3:evade taxes
The following location are considered as the major
:star:BERMUDA. :star:CAYMAN ISLANDS. :star:JERSEY. :star:LUXEMBOURG :star:BRITISH VIRGIN ISLAND :star:SINGAPORE :star:HOMG KONG :star:MAURITIUS :star:PANAMA :star:NEW ZEALAND :star:SWITZERLAND
They are some common reason why countries seek to develop themselves as OFCs including
: :recycle:The particular country may have little land base and few opportunities to develop other types of economic activities because of
i) limited energy supplies at high cost
ii) Limited raw materials and other natural resources
iii) Long distance from resources including raw material and energy sources
:recycle: The country may possess natural characteristics that make it an ideal OFC
i) Political stability
ii) Close geographical proximity to wealthy countries
iii)) Well educated manpower
The US National Bureau of Economic Research (NBER) has suggested that roughly 15 percent of the countries in the world are tax havens, that these countries tend to be small and wealthy, and are more likely to be successful tax havens
DIFFERENT BETWEEN OFFSHORE AND ONSHORE
Offshore financial centre
:unlock: Mainly for non-resident client.
:unlock: All service such as fund management, brokering, insurance, holding company registration,fiduciary services and internet gaming are available in offshore banking.
:unlock: Offshore banking has comparative advantages in term of property rights protection, legal and tax advantages and domestic financial regulation.
:unlock: Delaware in the U.S City of London in U.K.
Onshore financial centre text
:unlock: Mainly for resident client.
:unlock: Not all services such as fund management, brokering, insurance, holding company registration,fiduciary services and internet gaming are available in onshore banking.
:unlock: Onshore banking has no comparative advantages in term of property right protection, legal and tax advantages and domestic financial regulation.
:unlock: Mostly on small island such as Labuan IBFC.
FUNCTIONS OF OFFSHORE FINANCIAL CENTRES
Must have the necessary structure for providing the varied services required by a global clientele that ranges from different backgrounds
To maintain extensive legislation, and to take measure to reduce criminally related activities through enhanced enforcement and in certain cases, information sharing with other nations.
International centres which provide some or all of the following services.
Entities to manage financial systems with external assets and liabilities out of proportion to domestic financial intermediations designed to finance domestic markets
Jurisdictions provider that has relatively large numbers of financial institutions engaged primarily in business with non-residents