Onshore versus offshore investing is more complicated than a simple poll question where the one with the highest votes wins. It is undeniable that offshoring has gained so much popularity now than it ever was. The main and the most important reason why companies opt to invest in an offshore environment is that it increases efficiency significantly.

Outsourcing Business Models: Onshore Vs Offshore Outsourcing

Onshore outsourcing is keeping the business processes of your company inside the US jurisdiction or in any principal country for that matter. Labor and services are outsourced from providers in the same location as your business. If your business is based in the US, onshore outsourcing is hiring services from a US-based contractor.

Offshore outsourcing is exporting these same services and labor from the United States to other parts of the world where there is lower labor cost. Less developed countries are the popular sources of low cost labor and tax savings.

Outsourcing initially focused on low skilled jobs until education and training improved in the developing countries enabling them to provide skilled jobs. Offshoring jobs like call center, Information Technology and financing attract investors because of the low labor cost, the tax savings provided, the flexibility of the government, and the expansion opportunities. Certain issues occur however as to how effective offshore providers work. There have been concerns raised on the quality of services, language and time zone barriers, exploitation of workers and low environmental standards. Hidden costs on long distance communication, travel and training are also factors to consider in choosing offshore outsourcing.

Onshore providers rely heavily on technology and automation. They promise best quality products and services to clients from state-of-the-art equipment. The fixed cost and maintenance cost of these machines are primarily divided across the clienteles, making their outsourcing packages relatively expensive. More than the equipment used, clients are also assured of the quality performance from the onshore labor.

Onshore Vs Offshore Hedge Funds

Onshore hedge funds are organized as limited partnerships to avoid double taxation and provide liability protection to investors. The limited partnership typically shields investors or the limited partners from a loss.

Companies investing in offshore hedge funds however are now increasing because of the numerous benefits they bring in terms of net profit and growth. Asset protection, tax savings, diversification and expansion opportunities are just some of the big deals that companies particularly US-based get from offshore investing.

Offshore hedge funds primarily use three vehicles: limited partnerships, companies, and trusts. Limited partnership is often used by private equity funds with a limited number of investors. Ownership and control of the company is divided among investors which serves as protection to the limited investors’ assets from creditors. Offshore companies have more flexibility to open-end and close-end funds. Offshore unit trusts have lower tax rates, lower annual operating expenses and a more affordable investment compared to actively managed mutual funds.

Non-US individuals and institutions that are non-US as well or US tax exempted may invest in offshore hedge funds. Entities like pension fund, foundations and endowments are example of these institutions. US taxable investors participate indirectly in offshore hedge funding to avoid taxation by the US government.

In the US, tax exempt institutions will still be taxed whenever they engage in an investment strategy that involves borrowing of funds. This is not the case in an offshore environment. Privacy is also an issue in deciding whether to stay onshore or go offshore. In many cases, offshore investments are proven to protect an investor or the company from the prying eyes and ears. In an offshore environment, all the company’s details are kept anonymous. Offshore companies are also helpful in pooling all assets in one entity that will increase assets, enhance operational efficiencies, and help in further expansion and diversification in the long run.

Which Is Perfect For Your Business?

Practically, if you are a high net worth individual, offshore investments are good for you, your family and your assets. This provided optimal protection to your assets and properties.

As for the particular business, there is really no direct way of saying you must choose one over the other. In an onshore environment, you will be ensured of the high quality of the labor and services you receive but it will naturally cost you more. Lower cost, lower tax, and flexibility are your pros in choosing offshore investment. You can buy asset classes in an offshore environment that you can’t buy in an onshore trust. Dividend payments are also more flexible offshore than onshore.

There are still way more things to know about onshore and offshore investments and deciding which one to choose is a process. The most important thing is to know and focus on your particular business needs,