Location, location, location. Why it matters where your investments are domiciled.
As any estate agent will tell you, the one thing that matters when buying property is “location, location, location”. It is the same when expats invest their money offshore. You can find a desirable offshore wealth platform, with a great user interface, bright shiny graphics and rock bottom fees, but none of that matters if it is in the wrong location. Just as you would avoid a good property in a dodgy part of town, you should avoid a snazzy-looking platform based in an offshore jurisdiction with high tax charges and poor investor protection.
Otherwise you could find yourself on the hook for unexpected taxes, or worse, lose your money with little chance of redress. Just like buying a house, you want a nice, secure address.
They say a fool and their money are easily parted, but once you become an expat, you don't have much choice. You may end up living in one country, while your investment portfolio resides in another, and you need to know it’s safe there.
Many expats leave some legacy funds in their home country, then invest most of their earnings through an offshore platform as they become internationally mobile. This is more tax efficient and allows you to move around the world for work or play, while your money stays put.
Another benefit is that offshore jurisdictions specialise in helping expats and can provide the advice and products you need.
Offshore investing does not mean stashing your money on some distant, sun-soaked island and crossing your fingers that the taxman never finds it.
You want stable government, strong regulatory controls, statutory consumer protection, strict reporting requirements and other investor protection measures.
Typically, this will be a country such as Luxembourg, Dublin, Switzerland or the Channel Islands. They allow you to manage your money wherever you live in the world, and wherever you plan to retire or repatriate. It means you do not have the hassle of having to open a new account every time you move country.
If you work in a politically volatile country, keeping your money offshore could also help you sleep better at night. You also want a wide choice of investment funds and vehicles, such as mutual funds and exchange traded funds (ETFs), and of course low platform charges.
Europe may have a reputation for high taxes and intrusive regulators, but it also has a long-established offshore investing industry, that offers you a level of protection you may struggle to get elsewhere.
Beware hidden threats
Most expats will want to set up an investment account in a country where there is no taxation at source on your savings interest, investment income and capital growth.
Even if you can claim that tax back, it takes time, effort and lots of paperwork. Better not to be taxed in the first place.
Some taxes cannot be claimed back. Switzerland may be fabled for its stability, secrecy and security, but the country’s stamp duty rules are less well known.
Investors who use Swiss-based brokers pay local stamp duty on all stock market transactions, which is automatically deducted from your account every time you buy and sell shares, bonds and ETFs.
Although it is only 0.15%, if you trade regularly or are rebalancing a large portfolio, the levy will add up. Swiss stamp duty even applies to foreign shares, which are likely to make up the majority of your portfolio, where it doubles to 0.30%. You want to avoid that, if you can.
Another reason to choose your jurisdiction carefully is that you could end up at the mercy of politicians trying to raise money to plug gaps in their finances.
Being in the Eurozone isn't enough on its own, as savers in Cyprus found in 2013, when the government launched a €10 billion “savings grab” to tackle the country's debt crisis.
Non-resident savers, including many Russians, faced a one-off levy of up to 10%. In fact, they were its prime target.
Check your protection
You also have to check what investor protection you get in the jurisdiction where your account is based.
For example, international mobile banking apps are increasingly popular, used by tens of millions worldwide. Again, though, you need to check where the provider is ultimately domiciled.
Many app-based services have a "passport" allowing them to offer their services throughout the EU, but you have to check where you will get compensation if they go bust for any reason. Given the number of mobile banks jostling for customers, some are bound to come unstuck.
Will your losses be covered if that happens? Ultimately, you may be relying on the government of a distant country, which may not have the funds to compensate foreigner banking customers, or see it as a priority.
A happy home
When choosing your online investment platform, you need to look closely at where it is licensed, how it is regulated and what security your financial services provider offers.
As we saw in the financial crisis, financially health countries like Luxembourg and Switzerland came through in better shape.
The US is the world's largest investment fund centre, inevitably, but non-US citizens will not want to invest there, due to punitive tax rules. The second biggest is ‘AAA’ rated Luxembourg, ahead of Asian financial centres including Hong Kong and Singapore. Luxembourg offers unlimited investor protection, tax certainty and stringent anti-money laundering practices.
Your assets are held by an independent custodian bank approved by the State regulator, ring fencing your securities even if the company managing your investments goes bust. It gives you maximum 100% protection, combined with strict EU regulatory oversight, while limiting your exposure to withholding tax to extensive global double tax treaty network.
That’s the kind of protection you need. If your offshore platform offers all of that, then you have found the right location for your money.
Harvey Jones has been a UK financial journalist for more than 30 years, writing regularly for a host of UK titles including The Times, Sunday Times, The Independent and Financial Times. He is currently the personal finance editor of the Daily Express and Sunday Express, and writes regularly for The Observer and Guardian Unlimited, Motley Fool and Reader’s Digest.
Swissquote Bank Europe S.A. accepts no responsibility for the content of this report and makes no warranty as to its accuracy of completeness. This report is not intended to be financial advice, or a recommendation for any investment or investment strategy. The information is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Opinions expressed are those of the author, not Swissquote Bank Europe and Swissquote Bank Europe accepts no liability for any loss caused by the use of this information. This report contains information produced by a third party that has been remunerated by Swissquote Bank Europe.
Please note the value of investments can go down as well as up, and you may not get back all the money that you invest. Past performance is no guarantee of future results.