North Star Benefits

Who Can Benefit From North Star Investment?

The benefits of superior returns to be derived from North Star investments can apply to anyone but in order to take advantage of the preferential tax legislation in various jurisdictions, certain criteria must be met. Firstly, the individual must reside offshore or secondly, there has to be an effective offshore structure that puts distance between the the offshore gains from the onshore tax liability.

These structures that break the connection between a tax-payer in a high-tax jurisdiction and their gains in a low-tax jurisdiction have tended to revolve around the establishment of trusts. Of course, there are corporate entities that can be used, but for the most part, they are only applicable to genuine business situations.

Trusts, which are based in long-established English common law, have been widely utilized for offshore asset protection for nearly a century. As a result, the high-tax jurisdictions have had ample time to insulate themselves against trusts and, by now, their effectiveness has been severely impaired as far as the residents of many high-tax countries are concerned.

Why North Star Investment?

Tax tends to be the principal force behind 'offshore' but, for the overwhelming majority of affluent individuals contemplating North Star investment, tax is not a primary issue. They live in high-tax areas such as the EU, the US, Canada or Japan, they meet their tax liabilities and, if they do undertake 'offshore' investments, it is usually in pursuit of superior returns rather than nefariously attempting to avoid tax. 

Some investors exist outside the catchment area of the high-tax areas, either on account of the fact that they reside elsewhere or because they are temporarily non-resident for work reasons. Often, such investors avoid tax liability on their investments, whether on- or offshore, but that owes more to the investor's circumstances rather than the location of said investments.

So why could an 'offshore' investment be more attractive than an onshore investment?

Put simply, because the environment in which the investment operates is more lightly regulated.

The Benefits of Lower Taxation

All jurisdictions, whether low or high-tax, offer some tax advantages to certain types of investment, usually beginning with the government's own bonds which are usually tax-exempt. In high-tax jurisdictions, most of these tax exemptions only pertain to small investments and very rarely to high-return investments. Pension investment might appear to be an exception for the investor but it isn't really on account of the fact that the tax is only being deferred rather than escaped altogether. Established tax exemptions that pension fund managers in high-tax areas have enjoyed are now under siege in some countries, most notably in the UK.

In general, investment managers in low-tax jurisdictions have a significant tax advantage over their counterparts in high-tax areas which usually translate to better returns for the investor. North Star jurisdictions that have favorable double-tax treaty networks (surprisingly, there are a fair number) are usually able to receive investment income even from high-tax jurisdictions without the levying of withholding tax and often offer tax-exempt or tax-reduced local regimes so that the final investor is able to gain access to profits in a fund or investment with little or no intervening taxation.

Of course, a fund which pays a composite rate of 10% tax on its profits will appreciate far more quickly than one which pays 20% and disparities on this scale are easy to realize simply by selecting a low-tax base as against a high-tax base.