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CHAPTER 4: OFFSHORE FINANCIAL CENTRES - Coggle Diagram
CHAPTER 4: OFFSHORE FINANCIAL CENTRES
INTRODUCTION
Definition
Any financial centre where offshore activity takes place.
A centre where the bulk of financial sector activity is offshore on both sides of the balance sheet.
Reasons someone associates with OFCs
Legitimate purposes
keep funds in a secure bank in a secure country
To keep funds separate from daily use
Privacy
Illegitimate purposes
launder money from criminal activities
evade taxes
Common reasons countries seek to develop themselves as OFCs
Possess natural features that make it an ideal OFC
Political stability
close geographically proximity to wealth countries
well educated manpower
& some natural amenities that could attract tourist
a political willingness to pass bank secrecy laws & prepare to invest in policing & security infrastructure
May have little land base & few opportunities to develop other types of economic activities
far from resources including material & energy resources
Limited raw materials & other natural resources
limited energy supplies
FUNCTIONS
Must have/maintain necessary structure for providing the varied services required by global clientele
Jurisdiction provider
International centres – low/zero tax, moderate/light financial regulation, banking secrecy & anonymity
Entities to manage financial systems with external assets and liabilities
Maintain extensive legislation & to take measure to reduce criminally related activities
FACILITIES
Offshore current account
vary with onshore current account because it's offer are normally in foreign / major currencies
depositors can use debit card to withdraw money
ease of movement between accounts
FOREX Services
converting money for a property
making regular payments in a FC
moving to a foreign country
making a foreign currency payment
managing currency risk
Offshore savings account
most people thought requires millions to open a savings account at offshore banking
some offshore accept opening deposits of as little as USD1 & someone may have to invest minimum USD5000/USD10,000
operating charges is HIGH
Offshore investments
i. Types of services offered:
-structured notes
-structured deposits
ii. Attractions of OFCs investment services:
no capital tax
no capital gain tax
no tax on transfer
no corporation tax
no exchange controls
TYPES OF INSTITUTIONS UNDER OFCs
Offshore banks
Information disclosure requirements may not be rigorously applied
Subject to lesser form of regulatory scrutiny
International investment bank
Deposit may not subject to reserve requirements
Bank transactions may be tax exempted
May be free of interest & exchange controls
Offshore corporations/ international business corporations (IBCs)
Used to own & operate businesses
May be set up with one director only
In some cases – residents of the OFC host country may act as a nominee directors to conceal the identity of the true company directors
In many OFCs, the costs of setting up IBCs are minimal & generally exempt from all taxes
Popular vehicle for managing investment funds
Insurance companies
A commercial corporation establishes a captive insurance company in an OFC to manage risk & minimize taxes
An onshore insurance company establishes a subsidiary in an OFC to reinsure certain risks
An onshore insurance company incorporates a subsidiary in an OFC to reinsure catastrophic risks.