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Tax efficiency drives less than a quarter of high net worth offshore investment, says Verdict Financial

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Despite the commonly-held belief that tax considerations primarily drive offshore investment, only 23.2 per cent of global high net worth (HNW) wealth is invested offshore for tax reasons, while 24.1 per cent derives from HNW individuals seeking access to a greater range of investment options, according to financial services research and insight firm Verdict Financial.

The company’s latest report states that wealth managers need to gain a deeper understanding of the drivers that are prompting HNW investors to look for new places to store their fortunes. Indeed, HNW individuals invest offshore for a multitude of reasons, which often depend on geographic and demographic factors, as well as political, economic or monetary conditions in their country of residence.

Verdict Financial’s senior analyst Heike van den Hoevel notes that, fuelled by recent scandals and increased media attention, the word "offshore" is overwhelmingly associated with tax avoidance or even evasion. However, while reducing one’s tax bill is certainly a consideration for many HNW individuals looking at offshore investment – especially among those in countries with high tax rates or a complex tax system – it is not necessarily the primary consideration.

Heike explains: “Wealth managers need to understand that there is no single reason driving HNW offshore investment, and that providers have to factor in pronounced regional differences when designing their offshore propositions. For example, German HNW investors, who traditionally only invest a small proportion abroad, have been increasing their offshore holdings, mainly due to the lack of returns that can be earned at home, while HNW individuals in South Africa have been eager to channel wealth offshore to escape currency volatility in their own country, which suggests that offering hedging tools is essential.

“Verdict Financial believes that local wealth managers would do well to offer a wider range of investment funds providing exposure to international markets to avoid losing funds to offshore providers. On the flipside, providers looking to attract offshore wealth should highlight more beneficial investment conditions in their country.”

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