Loading the player...

What is 'Offshore'

Offshore identifies any item that is located or based outside of one's national boundaries. The term "offshore" is used to describe foreign banks, corporations, investments and deposits. A company may legitimately move offshore for the purpose of tax avoidance or to enjoy relaxed regulations. Offshore financial institutions can also be used for illicit purposes such as money laundering and tax evasion.

BREAKING DOWN 'Offshore'

Many countries, territories and jurisdictions have offshore financial centers (OFCs). These include well-known centers such as Switzerland, Bermuda and the Cayman Islands, and lesser-known centers such as Mauritius, Dublin and Belize. The level of regulatory standards and transparency differs widely among OFCs. Supporters of OFCs argue that they improve the flow of capital and facilitate international business transactions.

Offshore can refer to a variety of foreign-based entities or accounts. In order to qualify as offshore, the accounts must be based in any country other than the customer’s or investor’s home nation, existing somewhat separately from the person’s other resources and assets.

Offshoring Business

In the terms of business activities, offshoring is often referred to as outsourcing. This is the act of establishing certain portions of the business functions, such as manufacturing or call centers, in a nation other than the one in which the business most often does business. This is often done to take advantage of more favorable conditions in a foreign country, such as lower wage requirements or looser regulations, and can result in significant cost savings for the business.

Offshore Investing

Offshore investing can involve any situation in which the investors reside outside of the nation in which they are investing. This may require the creation of accounts in the nation in which the investor wishes to participate.

Offshore Banking

Offshore banking involves the securing of assets in financial institutions in foreign countries. This practice, which may be limited by the laws of the customer’s home nation, can be used to avoid certain unfavorable circumstances should the funds be kept in a financial institution in the home nation. This can include the avoidance of tax obligations as well as making it more difficult for these assets to be seized by a person or entity in the home nation. For those who work internationally, the ability to save and use funds in a foreign currency for international dealings can be a benefit. This can provide a simpler way to access funds in the needed currency without have to account for rapidly changing exchange rates.

Risks of Offshore Accounts

Due to the fact that banking regulations vary from nation to nation, it is possible the country in which your funds are located does not offer the same protections as other nations.

Offshoring and Company Profits

Businesses with significant sales overseas, such as Apple Inc. and Microsoft Corp., may take the opportunity to keep related profits overseas in markets with lower tax burdens. In 2015, it was estimated that $2.10 trillion in profits were held overseas, across 304 U.S. corporations, which was an 8% rise when compared to 2014.

RELATED TERMS
  1. Offshore Mutual Fund

    An offshore mutual fund is a mutual fund that is based in an ...
  2. No Shoring

    No shoring refers to cases where companies bring business functions ...
  3. Tax Haven

    A country that offers foreign individuals and businesses little ...
  4. National Bank

    In the United States a national bank is a commercial bank, while ...
  5. Blue Chip Swap

    When a domestic investor purchases a foreign asset and then transfers ...
  6. Nationalization

    Nationalization refers to the process of a government taking ...
Related Articles
  1. Investing

    Pros And Cons Of Offshore Investing

    Tax loopholes for investing abroad are shrinking, but there are still plenty of viable prospects. Get the big picture.
  2. Taxes

    The Top 10 Caribbean Tax Havens

    Discover relevant tax policy information about the top 10 tax havens located in the Caribbean, including the Cayman Islands and the Bahamas.
  3. Managing Wealth

    Offshore Banking Isn’t Illegal. Hiding It Is.

    If you want to put your money into an offshore account, go ahead. But be aware that it won’t be exempt from taxes.
  4. Managing Wealth

    When Offshore Banking Makes Sense for U.S. Expats

    For U.S. expats who have trouble opening bank accounts overseas, offshore banking can be a solution.
  5. Taxes

    How New Offshore Bank Rules Will Affect Americans

    FATCA is being implemented in 2013. Here is how it will affect the personal banking and taxes of Americans who hold offshore bank accounts.
  6. Personal Finance

    Offshore Accounts Hold a Tenth of the Stock Market

    According to Gabriel Zucman of UC Berkeley, fully 9% of the market capitalization of the U.S. equity market was held in offshore accounts in 2012.
  7. Taxes

    All You Need to Know About Tax Havens

    These tax-free zones might sound appealing, but the consequences often aren't.
  8. Insights

    4 Ways Outsourcing Damages Industry

    While outsourcing has preserved capital for many companies, it could be damaging to American industry.
  9. Taxes

    Tax Haven Vs. Tax Shelters: Is There a Difference?

    Learn about the difference between tax havens and tax shelters, and how both are used to reduce tax liability or avoid paying taxes altogether.
  10. Insights

    Tax Implications of Opening a Foreign Bank Account

    Learn about the tax implications of opening a foreign bank account, including accounts that generate earned or unearned income from overseas activity.
RELATED FAQS
  1. Why Is Panama Considered a Tax Haven?

    Learn about the offshore tax haven of Panama, and discover the legal and tax structures that make Panama a premier Caribbean ... Read Answer >>
  2. Why is Belize considered a tax haven?

    Explore the factors that make Belize one of the most modern and corporate-friendly tax havens in the world, including its ... Read Answer >>
  3. What is the difference between a nation's current account deficit and its currency ...

    Learn the respective meanings of the two terms, current account deficit and currency valuation, and understand the relationship ... Read Answer >>
Hot Definitions
  1. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  2. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  3. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  4. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  5. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  6. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
Trading Center