Investing without taxes on interest and dividends
One of the most common uses of offshore companies worldwide is in the area of investment transactions.
This can be seen in the fact that today more than 50% of the world\'s financial transactions are arranged through the bank or brokerage accounts of offshore companies. The rate is so high because the number of currency-related speculative or derivative transactions for which tax-free offshore companies are used amounts to several billion dollars each day. Offshore companies are no less popular among investors who trade in stocks and shares on the various stock exchanges of the world. In certain countries, such as the United Kingdom, for example, real estate speculators also take advantage of the advantageous tax regulations. In many cases, the offshore company is merely used to hold funds deposited in its bank account, with the interest accruing over a period of time. Why are these companies so popular in the transactions mentioned above? The reason is twofold. Firstly, these foreign companies enjoy exemption from capital gains tax, whereas in many countries local companies do not. The other area of taxation where these companies enjoy legal exemption is in the dividend and interest type of taxes. In many countries the rates of tax in these cases can be as high as 20-35%. It is obvious, therefore, that in certain cases it is more profitable for investors to accumulate money through the bank or brokerage account of an offshore company, rather than through a personal account. This same situation arose in Hungary following the changes in taxation introduced in Hungary on September 1st 2006. Foreign companies are not subject to the 20% tax on interest, so, compared to local tax residents, the funds in the account of a foreign company increase even more, with an extra fifth remaining in the hands of the investor.