CHAPTER 4 : OFFSHORE FINANCIAL CENTRES

Functions

  • Manage financial systems with external assets and liabilities to domestic financial intermediations to finance domestic markets
  • International centres that provide low/zero taxation, moderate or light financial regulation and banking secrecy
  • Jurisdictions provider that has large number of financial institutions primarily in business with non-residents
  • Maintain extensive legislation and to measure to reduce criminally related activities and information sharing with other nations
  • Maintain necessary structure for providing the varied services required by global clientele from different background

Facilities

Offshore Savings Account

Can deposit as little as USD1 and should be denominated in foreign curenncy

Invest minimum USD5000 to open offshore savings account

Charges may be high

eg : fee can be as high as USD25 a time, so depositing a small balance in an account may not make financial sense

Offshore Current Account

Can use a debit card to withdraw money in either Dollar, Euro and Sterling

Ease the movement between accounts means whoever can protect their money against currency fluctuations

Helping to save on chargers

FOREX Services

Covert money for a a property

Making regular payments in a foreign currency

Managing the client's overall foreign currency exposure

Forwards contracts and spot transaction

Offshore Investments

structured notes and structured deposits

no capital tax, no interest, no capital gains and no corporation tax

Institutions

International Investment Bank

  • Deposit may not be subject to reserve requirement
  • May be free of interest and exchange controls
  • Bank transactions may be tax-exempt

Offshore Banks

  • It may be subject to lesser form of regulatory scrutiny and information disclosure requirements may not be rigorously applied

Offshore Corporations

  • Limited liability vehicles registered
  • may be set up with one director only
  • used to create complex financial structure
  • residents of host country may act as nominee directors to conceal identity of tru company director
  • bearer share certificates may be used
  • popular vehicle for managing investment funds

Insurance Companies

  • Captive insurance company to manage risk and minimize taxes
  • Establishes a subsidiary to reinsure certain risks underwritten by the parent and reduce overall reserve and capital requirement
  • Reinsure catastrophic risks
  • Attractions include favourable income and low enforced actuarial reserve requirements and capital standards

Introduction

❗ OFC s are jurisdictions (authority) that provide financial services to non-residents on a scale that is excessive compared to the sie & the financing of their domestic economies.
❗ Can be defined as any financial centre where offshore activities take place.
❗ A centre where the bulk of financial sector activity is offshore on both sides of the balance sheet.
❗ Offer significant tax and regulatory advantages as well as providing clients from other.
❗ Services offered are mainly for non-resident clients.

Common reasons countries seek to develop themselves as OFCs