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CHAPTER 4 OFFSHORE FINANCIAL CENTRES (4.2 Facilities (Offshore saving…
CHAPTER 4 OFFSHORE FINANCIAL CENTRES
4.0 Introduction
• 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 countries with international banking services.
• Services offered are mainly for non- resident clients.
Reasons someone associates with OFCs
1. Legitmate purposes
• Privacy
• to keep funds seperate from daily use
• keep funds in a secure bank in a secure in a secure country
2. Illegiamtes purposes
• launder money from criminal activities
• avoid taxes
Common reasons countries seek to develop themselves as OFCs
1. may have little land base and few opportunities to develop other typres of economics activities
• limited energy suppliers
•limited raw materials and other natural resources
• far from resources including material and energy resources
2. Possess natural features that make it an ideal OFCs
• Political stability
• close geographically proximity to wealth countries
• well educated manpower
• A political willingness to pass bank secrecy laws
4.1 Function
Maintain necessary structure for providing the varied services
Jurisdiction provider
Entities to manage financial system with external asset and liabilities
International centres
Maintain extensive legislation
4.2 Facilities
Offshore saving account
Offshore current account
FOREX services
Offshore investments
Offshore savings account
• not requires millions of Dollars to open the saving acc offshore
•some accept minimum USD1 to open the acc & should denominated in foreign country
•Some can invest USD5000 or USD10,000
• Operating charges is high for ex USD25 of fee
2. Offshore current account
• Different with onshore current acc
• Depositors can use debit card to withdraw money
•Ease of movement between accounts
3. FOREX services
• Converting money for a property
•Moving to foreign country
•Making a foreign currency payments
•Managing currency risk
4. Offshore investment
4.1 Types
• Structured notes
• Structured deposits
4.2 Attractions of OFCs
• No capital tax
• No withholding tax on interest
• No tax on transfer
4.3 Types of institutions
International investment bank
offshore banks
International business corporations (IBCs)
insurance companies
1. International investment bank
• Deposits may not subject to reserve requirements
• Bank transactions may be tax exempted
• May be free of interest and exchange controls
2. offshore banks
• Subjects to lesser form of regulatory scrutiny
• Information disclosure requiremnets may not be rigorously applied
3. International business corporations (IBCs)
•Used to own and operate business
• May be set up with 1 director only
• Popular vehicle for managing investment funds
TERMINOLOGY
Structured notes - over the counter derivates with hybrid securities features
structured deposits - combination deposit and investment return based on the performance of underlying instruments
Offshore banking- located outside country
onshore banking - located inside country
4. insurance company
• a commercial corporations establishes a captive insurance to manage risks
• An onshore insurance company establishes a subsidiary to reinsure certain risks
• An onshore insurance compamy incoprates a subsidiary to reinsure catastrophic risks