Greater China, Southeast Asia Seen as Global Leaders in Use of Offshore Vehicles, Drawn by Efficiency & Legal Frameworks

Key Highlights:

OIL's sixth annual survey shows:

  • The offshore industry will be a leaner, more resilient and confident member of the global economy by 2020, driven by demand from increasing numbers of HNWIs in Asia.
  • The offshore industry remains a critical conduit for the efficient flow of investment capital through international markets
  • Greater China and Southeast Asia have emerged as the top two regions for growth in the use of offshore financial centres over the next five years
  • The emergence of "super jurisdictions" – large cities or city-states that can provide substance for structures, plus expertise and resources to clients. These centres, including Hong Kong and Singapore will continue to grow in importance over the next five years

Demand for asset protection, wealth planning and funds by high net worth individuals in Asian countries will drive continued growth in the offshore industry, according to OIL's sixth "Offshore 2020" annual market research study.

OIL, the leader in international incorporations and corporate services focused on serving the financial and professional intermediary sectors in Asia, interviewed 320 industry experts, including CEOs, lawyers and fund managers to shine a light on the current state of the industry and examine trends that will impact the industry's future.

OIL Group Managing Director, Jonathon Clifton said non-tax-driven demand drivers such as wealth planning and asset protection would increase due to the rise in wealth in Asian countries and an increase in the understanding of wealth management solutions.

"Offshore jurisdictions offer investors modern, cutting edge legislation, the provision of neutral venues that can be trusted by all parties involved in a transaction and a tax neutral environment that ensures profits are not taxed up to three times," Mr Clifton said.

Mr Clifton said offshore jurisdictions had long served as neutral venues for companies to make cross-border investments with their robust and familiar legal systems and professional infrastructure providing reassurance to investors.

"Offshore jurisdictions play a vital role in enabling global economic development by reducing cross border 'friction costs' and facilitating the global flow of capital. In a nutshell, the offshore industry serves as the plumbing of our integrated modern global economies."

The survey, which this year sampled respondents from not only Asia but the rest of the globe to ensure a clear picture of global sentiment in the offshore industry, overwhelmingly ranked Greater China and Southeast Asia as the top two regions for growth through to 2020 based on the rising wealth within the region. RMB liberalisation and burgeoning Chinese wealth, in particular, are giving rise to a client base eager to protect and diversify assets.

"Asia Pacific now holds claim to more millionaires than does the US. Entrepreneurs and high net worth individuals are largely regarded by respondents as the primary contributors to offshore's growth in this region over the next five years. Due to that influx of wealth, it is therefore not surprising that respondents have again ranked Hong Kong and Singapore as the most important jurisdictions come 2020, followed by the BVI and Cayman Islands," Mr Clifton said.

Mr Clifton said the rise of 'super jurisdictions' – defined as a geographical source of clients, markets where other clients go to do business and jurisdictions in their own right - was another trend that had emerged from this year's research.

"Hong Kong, Singapore, London and Dubai all meet the criteria to at least some degree. All can provide substance for structures via a strong employee base and sound business infrastructure, plus expertise and resources to clients. All are large cities or city-states that now compete with offshore to some degree. Survey respondents believe this trend will continue over the next five years."

The survey highlights that traditional offshore jurisdictions, namely the Cayman Islands and the BVI, remain resilient in the face of competition with the Cayman Islands headed to break the 100,000 mark for total registrations by the end of this year.

"Respondents noted that although geopolitical and economic crises may arise, economic uncertainty does not necessarily hinder offshore's appeal. However, what we are seeing is other jurisdictions shifting away from acting as collaborators to competitors. Hong Kong, Singapore, Luxembourg, Delaware and the Netherlands are considered contenders for usurping offshore centres, largely due to the perception that they are more respectable," Mr Clifton said.

While the industry faces challenges presented by regulatory initiatives, including base erosion and profit shifting (BEPS), common reporting standards (CRS) and FATCA, the survey shows the offshore industry remains positive on its long-term future.

"Change is a constant in our industry and we know that the regulatory environment will continue to shift. Regulation that balances greater transparency with the need to support companies wanting to expand globally will undoubtedly make our industry stronger and ultimately bring it into the mainstream. However, regulation should enforce best practice within our industry, not seek to stamp it out," Mr Clifton said.

"We believe that by 2020 the offshore industry will be a leaner, more resilient and more confident member of the global economy."

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