Offshore Financial Centers - Explained
What are Offshore Financial Centers?
Written by J. Mance Gordon
Updated at April 21st, 2024
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What are Offshore Financial Centers?
An Offshore Financial Center, otherwise known as an OFC, is defined as a country or jurisdiction that makes available financial services to non residents with the purpose of circumventing aspects of the non-resident's home country or jurisdiction.
These financial centers are generally used as locations for asset holding companies to achieve tax avoidance. Too often, they are used illegally for tax evasion.
Company assets (such as intellectual property) are parked in these foreign entities. This can protect these assets from liability and allow the allocation of certain revenues to the assets (rather than allocation to the country of use or sale - where taxes may be higher). This structure also allows the holder of assets (at death) to pass ownership to heirs or third parties without going through their home country probate system.
The international monetary fund categorizes OFCs as being third class financial centres, along with International Financial Centres (IFCs), and Regional Financial Centres (RFCs).