FAQs About Global Banking

What do ‘domicile’ and ‘resident’ mean?

Domicile usually relates to the country or state which an individual regards as their permanent home location. An individual’s domicile is established at birth and this stays the same until he resettles with the intent of remaining in that new location.

Residence is determined by a person’s status at a particular time. The regulations vary from country to country but, in most cases, presence in a country for over 183 days in any one year is enough to constitute residence for tax purposes. See a tax attorney for specifics.

What is a double taxation treaty?

A double taxation treaty is an agreement between two countries that is intended to relieve people who would otherwise be subject to tax in both countries from being taxed twice in respect of the same transactions or events. Usually, most offshore jurisdictions do not have double taxation treaties since they don’t have much local taxation. Offshore jurisdictions that have double tax treaties usually cannot use them to benefit investors receiving complete local tax exemption.

What is a withholding tax?

A withholding tax is when a dividend is paid internationally, the country from which the payment is made then taxes the payment as it leaves, by ‘withholding’ a proportion of it. If there is a double tax treaty between the two countries concerned, it is often possible to reduce the tax, or to reclaim some or all of the money. Some receiving countries allow the withheld tax to be offset against domestic tax liabilities.

What is meant by Money Laundering?

Money laundering is defined as the conversion of illegal money into legal money. For example, a drug-trafficker goes to a bank and opens up an account. He then deposits $1 million into it. The next day the trafficker transfers the money into another bank account where he then invests it into a portfolio of company shares. What he has accomplished is that successfully laundered the money. Therefore, what started out as money taken from an illegal source has now changed into a portfolio of shares that appear totally legal.

What is a trust?

A trust works by taking assets out of the ownership of the person who is establishing the trust (the “settlor”) and putting them into the hands of a trustee. An offshore trust is simply a trust that is based in an offshore jurisdiction and its profits are usually not taxable there. The trustee typically follows the wishes of the settlor.

What is an Asset Protection Trust?

An Asset Protection Trust is a trust which is designed to accomplish the estate planning goals of its settlor, before and after his death, which include planning for the preservation of the settlor’s estate from risks which would threaten to dissolve the estate if one or more of the risks materialized. An Asset Protection Trust is typically established in a jurisdiction offshore.

Why are offshore investments more highly regulated than other types of purchases?

Regulation covers the avoidance of fraud, avoidance of money-laundering and has prudential aspects, i.e. it attempts to prevent investment managers from making risky investments that could lead to losses for investors. Regulators think that people’s savings are so important they must be given special protection.

Is it legal to make offshore investments?

It depends on where an individual lives. In many countries it is illegal for offshore investment providers to advertise their products domestically. In spite of this, it is generally not illegal for anyone to make offshore investments. However, a potential offshore investor should check with his Financial Advisor as to his rights. In almost all jurisdictions it is illegal for someone not to declare the income or gains from offshore investments to the local tax authorities, and in those few countries with remaining capital controls, to the monetary authority.

Can a pension plan be transferred offshore?

Again, it depends on where a person lives, the type of plan he has, where he plans to go, when, etc. For this, he needs specialized professional advice. There are high-tax countries which permit part or all of a tax-privileged pension fund, or the income flow from it, to be transferred offshore in a way preserving some tax advantages, but it is not always so simple.