In offshore areas (tax havens), there is no tax on the money earned from investments. Therefore, by depositing money in insurance companies (financial institutions) located in tax havens and managing assets, you will be able to increase your money at an accelerated rate.
One point you should not misunderstand, however, is that you will need to pay taxes. As a general rule, there is no taxation when you invest in offshore regions, but as long as you live in your own country, you will be obligated to pay taxes in your own country once the profits from your investment are confirmed.
Some people think that offshore investments are completely tax-free, but in reality, this is not true. If you have made a profit, you need to file a tax return in your country and pay the tax.
In this section, we will explain how to pay taxes in your country when you make a profit from regular foreign investments.
Table of Contents
- 1 Profits Earned from Offshore Investment Are Taxable
- 2 If You Want to Avoid Taxation, You Must Become a Non-Resident.
- 3 Understanding Taxation on Regular Foreign Investments
Profits Earned from Offshore Investment Are Taxable
Different countries have different tax systems, and unless your country imposes no capital gains tax, you will be taxed on the money you earn from your investments.
As long as you are living in your own country, you are obligated to pay taxes not only on profits earned in your country, but also on profits earned abroad. In other words, you have to file a tax return in your country for the investment income from your offshore investment fund.
In the case of offshore investment, there is no taxation during the investment period. However, when the investment matures and the profit is confirmed, you have to pay tax in your country.
*If you live in a country where there is no capital gains tax, you are not obligated to pay tax.
Why do you have to pay taxes in your country?
Why do you have to pay tax on the money you make by investing in Offshore? In many countries, there is a law that requires residents of the country to pay taxes on all profits made abroad.
For example, let’s say you have made money by consulting for a foreign company. In this case, if you own an office and run a company in your country, you will be liable to pay taxes including the overseas profits.
In the same way, if you make money abroad, you are obligated to pay taxes in your own country.
With Regular Offshore Investments, Money Grows Quickly
When your money is withdrawn at maturity and you are obligated to pay taxes in your country when the profit is fixed, offshore investments may seem pointless. But the truth is, even if you are taxed in your own country, you should still choose to invest offshore.
The interest rate on fixed deposits is low in many countries. Even if you make a fixed deposit for 20 years, it is normal that your money will only increase by 110-120%.
Moreover, you will be taxed on this increased money.
On the other hand, with offshore investments, it is normal to see your assets increase two to three times even if you estimate it low. Also, since offshore investments aim for an annual interest rate of over 10%, it is normal for the money invested in be returned ten times or more when investing for 30 years or longer.
For reference, if you invest your money for 40 years at 10% annual interest compounded, your original money will be returned about 45.2 times. Although there are commission fees to be paid to insurance companies, it is natural that your assets will increase more than tenfold in the future by investing offshore.
For example, if you invest your assets in your country and $10.000 increases to $14,000, $4,000 is your profit. Therefore, you will be taxed on the $4,000.
In contrast, with offshore investment, the tax imposed on the insurance company is zero, so the rate of return to the investor (you) is good. Also, you will not be charged unusually high commissions like the investment and insurance companies in your country.
Therefore, your money will increase at an accelerated rate. If you invest $10,000 and it increases ten times, you will get $100,000 back. The difference of $90,000 is the profit.
The larger the profit, the greater the amount that will be taxed. However, the profit from asset management is overwhelmingly larger than when investing in your country. Instead of investing in your country, which earns almost no interest, investing offshore is superior.
Investors Trust, RL360° and All of Them Require Tax Payment
For your reference, Investors Trust and RL360° are known as popular insurance companies for offshore investments.
I have also invested in Investors Trust to accumulate money. The following is the actual management screen.
In this way, I am actually increasing my money through asset management by regular foreign investments. I am also obliged to pay tax in my country of residence on the money I make when the maturity date comes and the profit is confirmed.
The majority of people utilize well-known insurance companies such as Investors Trust or RL360° when signing up for offshore investments. In any case, it is important to understand that you need to file a tax return when you join these overseas funds and your profits are fixed.
If You Want to Avoid Taxation, You Must Become a Non-Resident.
However, we would like to avoid paying a high amount of tax. It is natural to want to avoid taxation on the money that you have invested over the years.
In this case, as I have already explained, as long as you live in your own country, you have to pay taxes in your own country on the profits you make in offshore areas. There are no exceptions to this rule, and if you don’t pay tax, it is tax evasion.
However, the only criteria are that you are living in your own country or not. If you do not live in your home country, you do not have to pay taxes in your country on the money you earn from your investments. In other words, you become a non-resident (a person who does not reside in your home country).
Whether or not you will have to pay taxes in your home country depends on your type of residence. If you move abroad, your nationality does not change. However, if you change where you live, it will make a difference in which country you have to pay taxes.
Fulfilling the Requirements for Non-residents
If you do not have an address in your home country and spend more than half of the year at an overseas address, you are treated as a non-resident.
In this case, if you move to an overseas tax-free zone and become a non-resident of your home country, you will not be taxed on investment income earned abroad. Also, offshore investment is a method of depositing money with insurance companies in tax havens and having them manage your assets for you, and there is no taxation on the profits.
Therefore, the tax payment will be zero. However, there are conditions for non-residents. For example, the following cases will be rejected.
- You are actually living in your home country, although you have removed your certificate of residence.
- You rent a house abroad, but spend more than half the year in your home country.
In order to become a non-resident of your home country, you must actually be living abroad. For this reason, it is not enough to remove your certificate of residence; you need to truly move abroad.
You only need to spend more than half of the year abroad, so even if you spend four months in your home country and the remaining eight months abroad, you can still become a non-resident. If you don’t want to pay unnecessary taxes in your home country, make sure you know how you can become a non-resident and avoid paying taxes.
*As an exception, Americans are liable to pay taxes in the US no matter where they live in the world.
Move to a Country with No Capital Gains Tax after Retirement
Even if you become a non-resident, there is another problem. That is, you will have to pay tax in the country where you live. For example, if you live in the US, you will have to pay taxes in the United States on the money you make from your offshore investments. In other words, you will have to pay taxes in the country you are moving to.
Capital gain is the profit you make from your investment. Basically, capital gains tax is imposed in any developed country. Therefore, if you choose a place to move to without thinking about it, you will eventually be taxed on your investment gains in the same way.
Therefore, if you want to make your offshore investments tax-free, you must move to a country where there is no capital gains tax.
For example, the following countries have no capital gains tax.
- Hong Kong
- New Zealand
And of course, there are many more countries. Many people move to these countries after they retire, although they need to obtain a visa.
Since offshore investments are taxed when profits are fixed, you can postpone paying taxes into the future if you invest your assets for a long time. If you retire from your job and move abroad afterward, you can avoid taxes on your offshore investment profits.
Understanding Taxation on Regular Foreign Investments
If you invest in a financial institution located in an offshore region, your money will grow at an accelerated rate because the region is tax-free. However, this does not mean that you will be tax-free. You will be required to pay capital gains tax.
The tax exemption is for insurance companies that have their companies in offshore areas. Since the capital gains tax is exempted, the amount of money can be increased very greatly by asset management and this can be returned to the investor (you) a lot. Therefore, it is easy to increase your money if you invest in foreign funds.
If you live in your home country, you have to pay taxes in your home country on the profits from your offshore investments. However, since your money will grow tax-free and at a high interest rate during the investment period, even if you have to pay taxes, it is far more beneficial than buying financial products in your home country.
Also, since it is possible to postpone the fixing of profits, it is advisable to take tax-saving strategies, such as adjusting the maturity date to come after retirement.
In this case, move abroad after you retire. If you move to a country with zero capital gains tax, you will be truly tax-free. With this in mind, you should start investing in offshore investments with an understanding of what to expect when the investment matures.