What are Offshore Bonds?

Published by Thomas Herold in Economics, Investments, Laws & Regulations, Retirement

'Offshore Bonds' is explained in detail and with examples in the Retirement edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Offshore Bonds are sometimes called offshore investment bonds. These investment vehicles allow individuals to gain control over what point they pay tax, to whom they will pay such tax, and how much they will ultimately pay in the end. These types of bonds are offered internationally from some of the mega global multinational life insurance firms like Britain’s Old Mutual International and Friends Provident International, Genarali Worldwide, RL360, and Zurich International.

Such Offshore Bonds would not ever be domiciled in the United Kingdom or the United States. Rather they would be based in such offshore tax havens as Luxembourg, Guernsey in the Channel Islands, or the Isle of Man. More and more these days, international expatriates choose Dublin, Ireland for a domicile for these investments. This is because of the perception that Ireland offers tax efficiency and effective regulatory protection.

When money like this is not brought back into most countries (beside the United States) where the citizen is from in the form of either capital appreciation or income, then it will not be subject to those jurisdictions’ taxes. This is why investors have to consider the tax jurisdiction where they are residents when they cash out their Offshore Bond. It means that selecting the best location and provider of the bond is extremely critical, since this will determine which access and taxation rules apply in the event of a cash out scenario.

A great number of the Offshore Bonds prove to be inexpensive, completely transparent, and tax efficient planning investment vehicles. Investors still have to be careful that they are not abusing this type of tax and investment vehicle. Reality is that whether a bond is offshore or onshore, it truly is an investment masquerading as an insurance contract. This delivers to the investors an array of some helpful tax benefits.

There are a number of good reasons for why investors (and especially those who are not U.S. citizens who can not escape from their own taxing regime the IRS no matter where they live unless they give up their citizenship) utilize such investment vehicles as Offshore Bonds. For starters, an offshore bond will not be considered an income generating asset. Because of this truth, trustees and individuals do not have to fill in any tax returns which require self assessment.

Income which is reinvested in the Offshore Bonds will not produce income tax events. These bonds have advantages over pensions and retirement accounts as well, since investors can assign them to another individual or legal entity at will. Money kept inside of the bond may be switched around and still will not require any Capital Gains Tax payment or even tax reporting situations.

There are similarly income tax-free events with these Offshore Bonds. It is possible to draw out as much as five percent of the premium originally deposited or paid without creating any taxing liability. This can be done over a span of 20 consecutive years. When owners make their five percent withdrawals, this is not an income-generating event, but instead simply a return of original capital to the bond holder. These bonds may also be put inside of a trust and then removed from it without creating an income taxing event.

Without a doubt, these Offshore Bonds have proven to be enormously popular with expatriates living abroad. They provide tremendous possible tax advantages for anyone who will reside outside of their native country (besides for citizens of the U.S.). The reason for this is that investors are able to claim tax relief for those gains which they make when residing offshore. This significant benefit is known as time apportionment relief.

For British residents as an example, they are able to lower the tax which must be paid commiserate with the amount of time they resided outside of the United Kingdom. So if they were bondholding residents of Spain for half the life of holding the bond, then this would lower the amount of taxes they had to pay for any income or gains in Britain by half.

The danger of course is that some commission-based financial advisors will try to take advantage of the investors in this type of program. When they are not correctly established with extreme transparency, the unscrupulous financial advisor may draw out a significant amount of the savings percentage wise. This transfer of wealth is not illegal, as it is merely a case of high fees and commissions. These Offshore Bonds can be dangerously opaque if investors are not careful.

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The term 'Offshore Bonds' is included in the Retirement edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.