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Why More Wealth Firms Move Onshore

Francis Parisis, 2 December 2020

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Certain "onshore" financial centres are attracting more wealth management action, driven by structural shifts in the booking centres and approaches towards where to park financial assets, according to the author of this article.

There are several “shores” in financial centres: Offshore, onshore and nearshore. How much these terms illuminate rather than obscure is debatable. In part, there is some pushback against “offshore” because of past associations with hiding from the tax authorities, although changes mean that is usually not the case anymore. Some offshore places can be cleaner than onshore ones. Sometimes the terms are trying to nail down whether those who use these centres actually live there or don’t do so. But that point does not necessarily mean that an “onshore” location will necessarily be more transparent in terms of financial bad actors. Offshore remains a big area, of course. According to Boston Consulting Group’s report earlier this year, Switzerland remains top of this category, holding $2.4 trillion of such money in 2019, ahead of Hong Kong at $1.9 trillion; Singapore at $1.1 trillion; the US at $800 billion (Delaware structures, etc); the Channel Islands ($500 billion); the United Arab Emirates ($500 billion); Luxembourg and the UK both at $300 billion.

Even so, pressures by major governments (albeit inconsistently) to cramp offshore centres’ style is presumably good news for onshore locations such as Luxembourg, Ireland and the UK (although after Brexit, some might debate how “onshore” the country is going to be). 

To address the prospects of onshore centres is Intertrust Group, a provider of specialised corporate, fund, capital market and private wealth administration services. This comment comes from Francis Parisis, Intertrust’s global head of private wealth, who examines the reasons behind the trend and explores what it means for the future of the industry. The editors of this news service are pleased to share these insights and invite readers to join the debate. The usual disclaimers apply to the views of outside contributors. Email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

The debate about whether to structure onshore or offshore is one that has been going on for some time, but it has taken on extra resonance recently as we’ve seen an increase in the popularity of onshore jurisdictions. Before we explore the reasons for this, and what it means, let’s quickly examine what an onshore jurisdiction is.

Quite simply, onshore refers to a jurisdiction with a financial services specialism that is more regulated than any other jurisdiction. Examples of this in the EU include Luxembourg, the Netherlands or Ireland; in the US we’re talking about South Dakota and Delaware; and in Asia Hong Kong and Singapore could both be considered onshore.

They are generally international in scope, have bilateral agreements with many other jurisdictions and have access to tax treaties. Luxembourg, for example, has the highest number of bilateral agreements in the world. This matters because it has become more and more important for clients to be efficient from a tax and investment perspective and, of course, many ultra-high net worth individuals and families are living global lives with multiple geographic touchpoints.

Growth agenda
Efficiency and globalisation are just two of the drivers behind the increased popularity of onshore jurisdictions. Since the financial crash of 2008, and especially over the past five years, there has been a growing push towards global transparency (FATCA, DAC6 and CRS are all obvious examples of this) and there is a lot more scrutiny over investment vehicles.

Onshore jurisdictions satisfy these requirements and are gaining more recognition as a result from national and international authorities. Both France and Poland, to take just two examples, have recently become more receptive to their citizens structuring their wealth in jurisdictions which they regard as friendly and secure.

The private wealth industry has come a long way from its tax-centric origination; nowadays it is much more about the expertise of the wealth manager and the transparency of the jurisdiction in which that professional organisation is based.

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