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Offshore Banking: How to Make the Migration

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The benefits of offshore banking

It was the second time her career had taken her to London from her native Italy. Now in her 50s, she was looking forward to moving back to where she had cut her teeth as a portfolio manager for a pension fund.

But unlike then, she had sizeable personal assets to manage, and was wary of potentially having to pay additional tax on the income from her assets held in Italy as a result of returning to London. Her solution? Offshore banking.

Daniel Dupré, Relationship Manager at Citigold Wealth Management in London, says offshore banking has grown in recent years thanks to the capital's large population of international professionals.

"It's a very popular option with foreign nationals, especially with managing directors and senior executives who relocate," he says. "They want to migrate their assets, and offshore banking is potentially a tax-efficient way of allowing them to do that." Of course, individuals should always seek independent tax advice."

Residency rules and risk-diversification

Jurisdictions specialising in offshore banking offer tax neutrality, meaning they do not tax individuals who are not residents, allowing them to keep cash or investments without being subject to local tax.

Individuals who live across different jurisdictions and currencies often take advantage of this by holding their assets in one place and only paying tax where they are registered as a resident, thus avoiding the risk of being taxed twice.

Offshore banking also offers the possibility of managing an individual's assets cleanly through different accounts: one for the investor's initial capital and a second for any income generated. If an investor has assets in different currencies, they can even transfer them to their chosen offshore centre while keeping the assets in their original currencies.

A third benefit, argues Citi's Daniel Dupré, is additional risk-diversification. This is because investors and wealthy individuals can place their assets in a different jurisdiction from the onshore banking services they typically use for their salary and day-to-day banking needs.

Jersey sets the standard

From the dozens of global Offshore Financial Centres (OFCs)– the list extends from Andorra, the tiny principality in the Pyrenees, to the island of Vanuatu in the South Pacific Ocean – how do investors and HNWIs go about choosing what is most appropriate for them?

For international residents based in the UK, the Channel Island of Jersey is consistently one of the most popular OFCs for several reasons.

First, the crown dependency sits in the same time zone as the UK, uses English as the official language and uses pound sterling as its currency, which may provide investors with peace of mind. It also has a long history of political, economic and judicial stability.

Second, its decades-long existence as an international financial centre has attracted considerable depth in industries that provide vital support to financial services, such as legal advice, corporate and accounting services. According to Geoff Cook, Chief Executive Officer of Jersey Finance, which promotes the island as an international financial centre, said that Financial and legal services were Jersey's largest employer last year, accounting for more than 13,000 jobs, or 22 per cent of Jersey's total employment.

Third, and perhaps most important, the largest of the British Channel Islands has set itself apart from many of its competitors by establishing a robust and transparent regulatory environment.

In 2009, for example, the International Monetary Fund (IMF) concluded that Jersey's financial-sector regulation and supervision "comply well with international standards", adding, "both processes and resourcing have been enhanced in recent years".

It also praised the Jersey Financial Services Commission, the industry regulator, saying it operated with independence and with mechanisms to ensure its accountability. "Jersey has continued to maintain an open and co-operative relationship with regulatory authorities overseas," the Fund concluded.

Committed to transparency

At a time of heightened concern over money-laundering and other financial crimes – international authorities have ratcheted up their scrutiny of many jurisdictions offering offshore banking services – that openness has helped Jersey set itself apart from its competitors.

For example, Moneyval, the Council of Europe's committee of experts on the evaluation of money-laundering measures and the financing of terrorism, said in 2016 that Jersey was compliant or largely compliant in 48 of 49 assessment areas. The report described Jersey as a "mature and sophisticated regime for tackling money laundering and the financing of terrorism".

Last year, the Paris-based Organisation for Economic Co-operation and Development (OECD) awarded Jersey a "fully compliant" rating on tax transparency. Jersey was among the early adopters of the so-called Common Reporting Standard, which was developed by the OECD in 2014 and allows for the automatic exchange of tax and financial information to help prevent cross-border tax evasion.

Matt Gregory, Client Services Head at Citigold Wealth Management in Jersey, acknowledges that not all clients can take advantage of offshore banking services. But for those who can, he says the advantages are obvious. "If you are wealthy and moving to the UK, it should be one of the first things you look into," he says.

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