Cutting tax costs with offshore investing

 US-PDGov

By Thomas Spencer

A lot of U.S. citizens are getting fed up with the ever-increasing taxes that are enforced on business profits and more and more of them are turning to offshore options to maximize their profit potential. People are starting to see that they can see a drastic increase in income just by switching to an offshore business. With the way that the economy is going at the moment, a lot of business owners have no other choice but to do so if they want to stay in operation. If you’re unfamiliar with why you should move your business offshore; read on, you may be surprised.

A lot of people have the notion that making profits with an offshore company is illegal or malicious, but this is just a misunderstanding. Utilizing the benefits of an offshore company is absolutely legal and there is nothing wrong about doing so. You’re able to benefit from an offshore company by setting up your products or services with them, have them distributed throughout the world to utilize the advantages of taxation requirements that are enforced in different locations. 

Offshore service providers are able to profit from this by charging a small royalty fee for offering their services. Asset protection is associated with using an offshore. In this day and age, asset protection can be a lifesaver with all of the risks of being sued by money-hungry lawyers. Your risks can be minimized by allowing your assets to be inaccessible and you’re able to do this by using an offshore company. 

The reason that your assets are more secure with offshore entities is because of the privacy structure of offshore banking. This means that if you ever face a lawsuit of any type, your assets will not be at stake. This can be very beneficial for anyone who is currently in a legal battle.

If you have a family and want to ensure their financial well-being after you’ve passed on, using an offshore service can be a great way to do so. You can easily setup your assets or bank accounts to pass over generation to generation all while avoiding costly tax requirements. There’s no reason to pay the middle man when all you want to do is ensure that your family is able to be financially stable after you’ve passed.

You should take some measures to ensure that you’re picking a good offshore company before you allow them to take your business. It’s not extremely common, but from time to time there are some offshore companies that simply pocket your money. You can avoid this by spending some time researching and checking out the financial and legal history of the company in question.

You want to make the most of your company, and using offshore services will allow you to do so. Follow the trend of many other successful business owners and start using offshore companies to your advantage.

About the author: Thomas Spencer has spent more than 20 years in a Cyprus holding company and has continued to achieve much financial success.

Is it safe to invest in China?

With annual GDP growth  between 8.7-9.3 percent forecasted through 2013 per the World Bank it is easy to think 'China' is a good investment. It is not quite that simple though. 'China' includes the sum total of its economic components which are managed by different policies and exist in a market quite different to the United States. Having a good grasp of China's economic drivers, and which ones offer good opportunities for investing if any, is a place to start evaluating the reality behind the beliefs.

In its July 16-17 Weekend Edition, The Wall Street Journal reported China is a good prospect for investors because problems are overestimated and Chinese Stocks are cheap. Yet in it its July 18-24 edition, Bloomberg-Businessweek  offers a completely different tone, one of caution. For example,  according to the latter source all that is needed to bring China to an economic crash or slowdown is GDP below 7 percent. Moreover, also per Bloomberg-Businessweek, the Chinese real-estate market is beginning to show signs of higher supply. This tends to affect prices to the downside and the affect on net worth follows and carries through into economic numbers such as GDP from real estate related production.

The Wall Street Journal suggests China's growth gives it more leeway to use aggressive monetary and fiscal policy, but historically, linear geometric growth for decade upon decade isn't exactly a swish shot in the basket for developing nations. Even the United States had bumps in the road via the 1929 stock market crash, the great depression and 1970's oil crisis. 

China's economy is somewhat dependent on the global economy as are most economies via globalization. If global demand for products subsides along with a plateau in real estate and cost driven inflation then there is room for doubt. Additionally, a restrictive monetary tightening during a period of growth encourages cyclical economics and China's inflation is still above 6 percent per Bloomberg meaning things are getting more expensive in reference to a  less than free-floating Yuan-Renminbi. That can also lead to a cyclical pattern or slowdown and is still rather high considering the Chinese Central Bank has been tightening money supply all year to date.

Then of course there are the actual securities and details. Exchange Traded Funds, Chinese currency, Treasuries, Businesses? Where and how to invest without losing money is more than a mere technicality. How well do fund managers invest in China? Past performance is not a guarantee of future success, and due diligence on Chinese companies isn't quite as easy as for U.S. businesses. Just like any investment, investing in China is a risk and that risk is probably best kept in mind despite China's current growth which is in excess of three times that of the United States. 

Determining the Risks of Investing in Latin American Businesses

Investing in Latin-American businesses involves the same due diligence that is required for investment in any business. In the case of Latin-America however, the investing environment has its own nuances, risks, pitfalls and potential. Thus, a part of the due diligence required for investment in Latin-American businesses is identifying these investment risks.

Latin-America consists of several countries as far North as Mexico and as far South as Argentina. The business, legal, and economic environments for all these countries varies considerably, enough so to warrant individual research for each country prior to investing in them.

Generally speaking, Latin-America is susceptible to certain risks that other countries' businesses may not be. These risks include 1) inflation or deflation risk, 2) political risk, 3) sovereign risk, and 4) economic growth/demand risk. This article will review these potential investment risks facing existing and potential investors in Latin America.

Inflation or deflation risk

According to the Center for Economic Policy Research, several Latin American countries in 2009 are either subject to inflationary or deflationary pressures. Economically, there are many other potential risks, however for Latin-America inflation and deflation is one of them in addition to demand risk which will be discussed in the following section.

Inflation above 4-5% is fairly high and deflation is indicative of shrunken or shrinking economy. Several of the following countries have inflation values bordering on, or in excess of high or low inflationary and deflationary values. Headline inflation indicates overall annualized inflation rates whereas core inflation refers to a specific group of inflation measured products.

• Venezuela: 24% headline inflation, 20% core inflation
• Chile: -2% headline deflation, 5% core inflation
• Brazil: 4% headline and core inflation
• Colombia: 4% headline inflation, 4% core inflation
• Mexico: 10% headline inflation, 4% core inflation
• Dominican Republic: -20% headline deflation, 2% core inflation
• Peru: 5% headline and core inflation
• Ecuador: 0% headline inflation, 2.5% core inflation
• Bolivia: 2.5% headline inflation, 5% core inflation
• Guatemala: 0% headline inflation, 5% core inflation

In the short-term, deflation is a factor for stable economies with low inflation, whereas inflation is a risk for those Latin-American companies subject to either an over liquid money supply, and/or rising prices of goods and services. The above statistics are approximate figures obtained from the Center for Economic Policy Research going into 2009. Moreover, the inflation trend-lines for these values is up for Brazil, Venezuela, Columbia and Mexico and is down for Chile, Dominican Republic, Bolivia, Ecuador, Peru and Guatemala.

Political risk

Another investment risk facing some Latin American countries is political risk. For U.S. investors, these risks are higher with countries that have anti-American economic policy such as Venezuela and Panama. Up to date news and information on specific Latin-American countries can be found at http://www.latinamericanmonitor.com. Other political risk arises from single events rather than policies within a country.

In a 2007 essay from Professor Christopher Moser of the University of Mainz, Germany Department of Economics the possibility of market correlations with political events in Latin America is discussed. Specifically, the essays studies the market affects of changes in political structure on national bond spread pricing. The research by Moser indicates Latin-American countries are subject to political risk in terms of financial markets.

Politically, some Latin-American countries are more at risk than others. Those countries with weak leadership, rebellious movements, large economic problems and volatility, and a significant history of political turmoil are the higher candidates on the political risk scale. Naturally, the type of investment(s) also having bearing on how much political risk holds sway. For example, investment in local companies may be safer than investment in foreign subsidiaries operating in the Latin-American country.

Sovereign risk

The Political Risk Insurance center has performed an analysis of sovereign risk on Latin American countries. Specifically, this risk and studies of it, assist in determining how likely a country is to pay its national debt whether that debt be in the form of Bonds or other financial instruments. The PRI-Center study indicates a negative outlook on sovereign risk for Latin-America with some countries holding higher credit worthiness than others. Of those countries Brazil, Mexico, Trinidad & Tobago, Chile and Peru have the higher credit ratings in the B- to B+ range.

The countries with the lowest PRI-Center credit ratings include Uruguay, Jamaica, Argentina, Dominican Republic, Ecuador, El-Salvador and Costa Rica with credit ratings in the E to D+ range. Factors that can lead to increased sovereign risk include negative GDP growth, high inflation, and over extended debt burdens for a nation-state. Consequently, looking for a range of indicators such as inflation, national debt, GDP growth, trade deficit etc. can all point to different levels of investment risk of one kind or another.

Economic growth/Demand risk

In a 2009 report from the Brookings Institution entitled 'Latin America's Economic Outlook for 2009: No Time for Optimism', the economic factors contributing and/or related to the performance of investments within the region are discussed. A growth rate of 3% was predicted for the regions biggest economies, however this is a lower rate than originally forecasted.

Nevertheless, despite declining economic indicators in the region such as capital inflow, international and regional demand trends, and GDP growth, Latin-American countries as a whole are still expected to grow on average, just not a sustained pace similar to previous years. Other economic factors mentioned in the Brookings report included Asian treasury investment within Latin-American countries and those countries ' ability to raise capital, financial reserves, and exchange rates as they relate to investment in the region.

In light of the U.S. and global recession of 2008-2009, a contraction in economic conditions within Latin American countries is not surprising. However, economic conditions after such a contraction are key in determining how well investments in the region may perform. Lagging indicators despite global economic recovery may point to internal economic difficulties such as debt problems, demand declines and high inflation among other things.

Summary

It is a good idea to study the risks of international investments before proceeding with such either independently or via a fund or other financial instrument or investment product. In Latin-America, specific risks exist for different countries within the region. Among these are risks discussed, but not limited to those in this article.

Some of the key investment risks affecting Latin-American countries include inflation or deflation, demand, political risk, sovereign risk, regulatory and operational risk. Each Latin-American country is subject to different economic conditions except for those more regional in nature. Consequently, taking both national and regional investment risks into account when or before investing in Latin-America may also be financially prudent.

Sources:

1. http://seekingalpha.com/article/65523-investing-in-latin-america
2. http://tinyurl.com/5w73axv
3. http://www.cepr.net/documents/publications/inflation-latin-america-2009-02.pdf
4. http://ideas.repec.org/p/zbw/gdec07/6804.html
5. http://www.pri-center.com/documents/BMILatam.pdf
6. http://www.brookings.edu/opinions/2009/0122_latin_america_cardenas.aspx