CHAPTER 4: OFFSHORE FINANCIAL CENTRES (Types of Institutions :star:,…
1. Offshore Savings Account
- Offshore savings account accept opening deposits of as little as USD1
- The charges for operating an offshore savings account may be high
- In order to open offshore savings account, minimum must be USD5000 or USD10 000
- Offshore Current Account
- The currency offered are normally in foreign or major currencies
- Depositors can use a debit card to withdraw money either in Dollar, Euro and Sterling currencies for free again helping to save on charges
- It also can protect customer's money against currency fluctuations
3. FOREX Services
- Converting money for a property. For example, house purchase in a foreign currency
- Making regular payments in a foreign currency in example, paying monthly school fees in a different currency to which a person receives his/her income
- Moving to a foreign country with the need to exchange money
- Offshore Investment
- Types of services offered are structured notes and structured deposits
- Other attractions of OFCs' investment are no capital tax, no exchange controls, less stringent trading restrictions and so on
1) Jurisdictions provider that has relatively large numbers of financial institutions engaged primarily in business with non residents.
5) OFCs must have or maintain the necessary structure for providing the varied services required by a global clientele that ranges from different background.
2) Entities to manage financial systems with external assets and liabilities out if proportion to domestic financial intermediaries designed to finance domestic markets.
3) International centers which provide some or all of the following services. For example, low or zero taxation, moderate or light financial regulation, banking secrecy and anonymity.
4) OFCs need 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
- OFCs defined by Zorome (2007) are jurisdictions that provide financial services to non-residents on a scale that is excessive compared to the size and the financing of their domestic economies.
- OFC is a center where the bulk of financial sector activity is offshore on both sides of the balance sheet.
- OFCs offer significant tax and regulatory advantages as well as providing clients from another countries with international banking services. Financial services offered are mainly for non-resident clients.
- Reasons why someone associates with OFCs:
1- Legitimate Purposes
2- Illegitimate Purposes
1- The particular country may have little land base and few opportunities to develop other types of economic activities.2- The country may possess natural characteristics that make it an ideal OFC.
- Common reasons why countries seek to develop themselves as OFCs including:
- The following locations are considered as the major destinations:
3- British Virgin Island
4- Cayman Island
8- Hong Kong
11- New Zealand
iii. Offshore Banks
- May be subject to a lesser form of regulatory
- Information disclosure requirements may not be rigorously applied
iv. Insurance Companies
- 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
i. International Investment Bank
- Deposits may subject to reserve requirements
- Bank transaction may be tax-exempted / treated under favourable fiscal regime
- May be free interest & exchange controls
ii. Offshore Corporations / International Business Corporation
- IBCs are limited liability vehicles registered in an OFC
- They may used to own and operated businesses
- They can be used to create complex financial structures
- In some cases, residents of the OFC host country may act as nominee directors to conceal identity of the true company directors
1- Low or no taxes.2- Services are mainly for non-resident clients.3- There are no limited FOREX controls.4- A high degree of political stability or personal safety. 5- A set of practice that supports bank secrecy.