The term “off-shore” simply means anywhere other than the place of physical location of the person using the word. If you are living in Singapore, off-shore would mean Brunei, Hong Kong, British Virgin Island (commonly known as BVI) etc. If you are living in Indonesia, off-shore would mean Singapore, Brunei, BVI etc.
An off-shore company is an investment holding company set up in a country outside of where you are physically located. The purpose of this company is to hold your investment assets.
Off-Shore companies have been commonly used for estate planning purposes, especially in the areas of estate protection and succession planning. The reasons are explained in the following paragraphs.
Example: Person X is servicing a high net-worth individual who has acquired much wealth by bringing his company to IPO and then subsequently selling his shareholdings to a private equity firm. This gentleman told X: “I don’t mind if people know that I am rich; but I don’t want people to know how rich I am”. Underlying this statement is the desire for confidentiality. If you feel uneasy having all your assets located in Singapore or in the country you live in, you might want to consider placing some of your assets in an off-shore company.
There are many risks that can dilute a person’s wealth, like the risks of litigation, divorce, business failures etc. You can ring-fence some of your core assets into an off-shore company and then transfer the shareholdings of the company into an Off-Shore Asset Protection Trust.
Political stability is a rare commodity in this brave new world. Great wealth can be lost overnight if all your assets are located in a country that is politically unstable. This is one reason why many people park their wealth in a politically stable country with well-established laws.
The by-product of a politically stable country is a stable currency. Usually, a stable currency can be efficiently interchanged in the world capital market and can fence off currency speculators’ attacks. This is another important reason why people want to park some of their assets in an off-shore company with a stable currency like the US$ or the Singapore dollar.
Favourable tax regime
Most popular off-shore countries have a favourable tax regime. For example, in Singapore, there is no estate duty or capital gain tax. The personal income and corporate tax rates are relatively low. In Brunei, there is no personal income tax. Therefore, when you hold assets in these off-shore countries, your assets will not be diluted by taxes.