The foreign investors. Besides, the low taxation rate

The Legitimate Usage of Offshore Financial Centers.

1.     
Tax
reduction or Low explicit taxation.

Offshore
financial centers are known as a tax haven, which offer tax incentives to the foreign
countries investors. For instance, Cayman Islands (OFC) has no income tax, no
corporation tax, no inheritance tax and no capital gains tax. The low taxation
rate is designed to promote a healthy investment and favourable tax environments, in order to
attract foreign investors. Besides, the low taxation rate will only charge a
small portion on the foreign investors’ income and subsequently raise up the
investors’ wealth or after tax profit. As a result, it may attract foreign
investors to place their money or asset in offshore financial center in order
to reduce potential tax liabilities. In another word, any interest earned is
usually paid free from the deduction of taxation.  For those foreign investors they do not pay
tax on their foreign sourced income and they can enjoy greater returns
immediately, without having to apply for a rebate. Obviously, with this low
taxation rate it can attract more foreign business to invest in offshore
financial center. For example, a tiny country with very few resources and a
small population, attracting investors and dramatically increase the country’s economic
activity. Moreover, offshore investment occurs when the foreign investors form
a corporation in offshore financial center. The corporation acts as a shell for
the investors’ accounts, shielding them from the higher tax burden that would
be incurred in their home country. Because the corporation does not engage in
local operations and consequently little or no tax is imposed on the offshore
corporation. (Investopedia, LLC., 2018) Furthermore, Multinational
companies minimize their total tax liabilities through transfer pricing. For example,
the products are made in onshore but the invoices are issues offshore by the
multinational companies, it moving onshore profits to low tax regimes and the
multinational companies will save more or pay less tax to the government. (Monetary and
Exchange Affairs Department, 2000)

2.      Confidentiality.

Most of the offshore
financial centers has offer the complimentary benefit of secrecy legislation. In
offshore financial center, clients’ confidentiality is strictly maintained and
the countries have enacted laws in order to protect the foreign investors’
privacy. Besides, offshore financial center provide flexible reporting
requirement in order to protect the foreign investors’ confidentiality and
privacy. Moreover, if this confidentiality is breached, there are serious
consequences for the offending party. Some of the offshore financial center
such as Bahamas and Cayman Islands has maintain the statutory law that makes
the disclosure of client’s private information is a criminal offense. An
example of a breach of client’s private information is including, expose customer identities and
disclose a shareholder is a breach of corporate confidentiality in some
jurisdictions. Because of this strong privacy legislation in offshore
financial centres, it is not possible for a third party to gain access to the foreign investors’ private information
about offshore accounts, investments or trusts. However, this secrecy
doesn’t mean that the
foreign offshore investors are criminals with something to hide from the others.
It is important to note that,
offshore financial center ensure the foreign investors’ confidentiality is want
to provide a freedom platform to offshore investors to place their asset and
carry economic activities. Besides that, from
the point of view of a high-profile investor, keeping information secrete, such as the
investor’s identity, secret while accumulating shares of a public company can
offer the offshore
investor a significant financial and legal advantage. (Investopedia, LLC., 2018)

3.     
Asset management and protection from the impact of litigation.

Offshore financial center functions as a place to protect assets for the
account holders. In the situation of weak economic, political unstable and
fragile banking system, some of the wealthy investors are plan to place their asset
overseas in order to protect them against the collapse
of their domestic currencies, domestic banks, and existing exchange
controls.  Offshore financial centers are popular locations for restructuring ownership of assets.
Through trusts, foundations or through an existing corporation individual
wealth ownership can be transferred from people to other legal entities. Not only that, many individuals who are concerned about lawsuits,
or lenders foreclosing on outstanding debts plan to transfer a portion of their assets from their
personal estates to an entity that holds it outside of their home country. By
making these ownership transfers, individuals are no longer vulnerable to
seizure or other domestic troubles.