As the name implies, offshore investing is an investment made in a country other than the country of investor's domicile. An American investor making an investment in a European country is a typical example of an offshore investment, and obviously the American is trying to make money from his investments. There can be various other, not just financial motivations behind offshore investments. The major reasons being an attempt to diversify portfolio, reducing tax liability and to take advantage of growing foreign markets. Investments in financial products are affected by several factors such as political conditions, economic conditions, fiscal Policies etc.
Since the political, economical and fiscal conditions differ from country to country, an investor can mitigate such risks by investing in different countries. The second major reason for offshore investment is tax planning. Citizens of countries with higher tax rate may opt to invest in countries with relatively lower tax rates and thus may optimize their returns. Further, developed economies tend to have lower rate of growth. In order to tap growing markets offering substantially higher returns, an investor may opt for offshore investment.
However, there is also a certain downside to this kind of investing as well. The major negative point being the exorbitant cost of setting up an offshore investment account. Apart from this, it is difficult to assess the situation prevailing in foreign country. Like any other investment tool, even offshore investment calls for an utmost care on the part of investor. There is obviously money to be made, and opportunities to increase one's financial gain, but there will also be dangers involved as with many forms of investments.
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