4.0 Offshores Financial centres (4.3 Types of institutions under Offshore…
4.0 Offshores Financial centres
There are a few reasons why someone associates with OFCs:
a. Legitimate purposes
Privacy for personal/family business or political reasons
Try to keep funds separate from daily use incase of inheritance battles/divorce/personal bankcruptcy
Keep funds in a secure bank in a secure country..
b. Illegitimate purposes
Launder money from criminal activites
4.1 Functions of Offshore Financial Centres
Jurisdiction provider that has relatively large numbers of financial institutions engaged primarily in business with non-residents
Entities to manage financial system with external assets and liabilities out of proportion to domestic financial intermediations designed to finance domestic market
International centers which provide some or all of the following services ie. low or zero taxation, moderate or light financial regulation, banking secrecy and anomity
They are some common reasons why countries seek to develop themselves as OFCs including :
a. The particular country may have little land base few opportunities to develop other types of economic activities because of limited energy supplies at high cost, limited raw ,materials and other natural resources,long distance from resources including raw material energy sources.
b. The country may possess natural characteristic that make it an ideal OFC :
Political stability, close geographical proximity to wealth countries, well educated manpower.
4.2 Facilities offered by Offshore Financial Centres
A. Offshore Savings Account
Most people thought that, it requires millions to open a savings account at offshore banking
However, based on the OFCs around the world, it is a common misconception
some offshore savings accounts accept opening deposit of as little as USD1
B. Offshore Current Account
This account is varied with the one offered under the onshore current account,therefore the currency offered are normally in foreign or major currencies
The ease of movement between account also means whoever can protect their money againts currency fluctuation.
In addition, depositor can use a debit card to withdraw money in either Dollar, Euro, and Sterling currencies for free, again helping to save on charges
C. FOREX services
Among the services available for FOREX transaction are converting money for a property ie. house purchase in a foreign currency
Making regular payments in a foreign currency i.e 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.
Forwards contracts and spot transactions
D. Offshore Investments
Types off services offered :
Other attraction of the OFCs' investment services may include.
No capital tax
No tax on transfer
No corporation tax
4.3 Types of institutions under Offshore Financial Centres
a. International Investment Bank
Deposits may not be subject to reserve requirement
Bank transactions may be tax-exempt or treated under a favourable fiscal regime.
May be free of interest and exchange controls
b. Offshore banks
It may be subjected to a lesser form of regulatory scrutiny, and information disclosure requirements may not be rigorously applied
C. Offshore Corporations or International Business Corporation (IBCs)
IBCs are limited liability vehicles registered in an OFC
They may be used to own and operate business
In some OFCs, bearer share certificates may be used
d. Insurance Companies
A commercial corporation establish a captive insurance companies in an OFC to manage risk and minimize taxes
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/witholding/capital tax regime and low or weakly enforced actuarial reserve requirements and capital standards.