Nobody quite seems to agree on where the word “offshore” first came from – but it most likely developed in the UK.
The Channel Islands (Jersey and Guernsey) went into the finance business soon after the end of the Second World War. Their unusual constitutional status gave them independence in all domestic affairs, including taxation and banking regulation.
It didn’t take them long to realise that they could offer a safe, tax-free haven for moderately wealthy, middle class Brits who were being persecuted by successive Labour governments, desperate to pay off the debts of the Second World War.
During the 1970s, Labour governments in the United Kingdom raised taxes as high as 95% and restricted export of currency. Whilst the super rich had always looked to Switzerland, the Channel Islands provided a convenient, close, English-speaking alternative for overtaxed Brits looking to move more modest wealth “offshore.”
During the 1980s and the 1990s, dozens of Caribbean island nations renounced their status as colonies and broke away from Britain (and to a lesser extent France). On becoming independent sovereign nation states, they, too, saw financial services as a way to quick profits. Within easy reach of North America, they focused more on the US and Canadian markets, offering “no questions asked” banking services for those wishing to hide cash. We’ve all seen the movies about so called “Samsonite banking.”
Although leftist or populist politicians sometimes still try to tar the image of offshore islands with the brush of money-laundering, organized crime and tax evasion, the fact is that these economies today are generally prosperous and well regulated international financial centres that contribute in a meaningful and beneficial way to oiling the works of global commerce.
Things like hedge funds and captive insurance may be demonized by left-wingers, but in reality they are essential elements of the financial system, providing access and capital. And most of this business is done offshore.
Today most offshore centres prefer to be known as international financial centres, avoiding the “offshore” or “tax haven” appellations which they believe have negative connotations. While that may be true, the word “offshore” lives on.
Here at The Q Wealth Report we don’t want to give in to political correctness and we happen to like the word “offshore.” It’s become part of the English language and we see no reason to change it. Most people know what we mean when we say “offshore banking” and people understand something specific… unlike “international finance” which could mean almost anything!
Anyway, getting back to our theme, although the word “offshore” was originally coined because of the small island nations involved in the business, today it has become generally accepted as meaning any place outside your home country.
For example, to Brits the USA is offshore, and vice versa. Landlocked Switzerland, Liechtenstein and Andorra don’t have any sea shore at all, but they very much fit into our modern definition of offshore banking.
Tax Avoidance or Tax Evasion? An important difference to understand
According to a formulation by the OECD (Organisation for Economic Co-operation and Development), an offshore tax haven is a jurisdiction which actively makes itself available for the avoidance of taxes which would otherwise be paid in a higher tax jurisdiction.
The keyword here is “tax avoidance”. There is another one: “tax evasion”. Tax avoidance is legal, while tax evasion is a crime. Basically, tax avoidance is structuring ones’ business affairs in such a way that minimum possible amount of tax is payable, without breaking the law.
An offshore jurisdiction is one that offers attractive instruments or opportunities for tax avoidance, and for personal financial privacy, and for asset protection.
Find out more about Offshore Banks and how to open an account in our comprehensive, newly-updated Banking Report. Available free to all Q Wealth Members, the Practical International Banking Guide is available for $97 USD to all non-members.
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