Offshore Investments – Foreign Exchange Considerations

Individuals or businesses who need to make a large one-off overseas investment payment in a foreign currency can save on the cost of the transaction by engaging the services of a foreign currency broker regulated by the FCA (Financial Conduct Authority). Whilst it’s possible to facilitate a transaction through a bank, the service likely offered will be expensive due to the relatively high level of fees charged or poor exchange rate spread. An apparently small difference in an exchange rate can create a large difference in cost in absolute terms if the overall transaction is a large payment.  

Overseas Investments

Foreign exchange brokers – overseas investment 

Foreign exchange brokers use their market knowledge and experience to provide extremely competitive rates so whether your money transfer relates to the sale or purchase of an overseas investment or asset in the past or the future, there is a solution available that can save money. Existing funds can be converted using the most competitive spot rate but if a fee has been agreed and the paperwork is being finalised, then a forward contract will eliminate the risks associated with fluctuating currencies. 

If an exchange rate was to vary by ten per cent during the time taken between agreeing on a transaction and its execution this would materially affect the commercial viability of a transaction. At times of political or economic uncertainty, it’s quite conceivable that an exchange rate can move considerably within a period of a few days. It is not practical for anyone to accurately predict movements in the exchange rate when negotiating a price for a transaction and the use of forward contracts removes the need to closely monitor exchange rates once an agreement has been drawn. The absence of uncertainty due to exchange rate fluctuations brings great benefit to the business because the commercial success of a transaction can be established immediately. Transaction fees, which include amounts lost on a currency spread, do not bring value to an individual or company so their reduction is a positive step. 

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By making foreign exchange payments more efficient specialist foreign currency brokers are helping to create a market that is free from high transaction costs which place restrictions on trade. 

Overseas investment types  

First, think about which overseas investments best suit your financial investment objectives. What timeframe are you hoping to work with? What kind of risk tolerance do you have? This will help you select whether you want to invest in shares, residential property investments, fixed rate of interest bonds, etc. The easiest and also most typical methods people select to invest are via exchange-traded funds (ETFs) or mutual investment funds. 

When it comes to selecting between types of mutual funds, you can decide in between overseas funds (that include broad investments over multiple countries), regional funds (which cover regions like Europe or Asia), country funds (which work only in specific countries), or sector funds (which include gold or energy power across several nations). 

Reasons to invest overseas 

A lot of investors focus uniquely on their home market, partly due to knowledge and arguably the safety of the investment. However, this reserved approach can mean that they could be losing out on opportunities abroad. These are a few things to consider when thinking about overseas investment. 

Investment portfolio diversification 

Overseas stock markets of various geographical regions behave in different ways at various points in the financial cycle, providing an investment portfolio with some security against economic volatility in other markets. 

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Accessibility to good companies 

The UK has its share of terrific companies, but there are some international leaders to be found elsewhere– investors can proactively invest in the next Amazon, Nestle, or BMW. 

Access to higher investment growth 

There are areas where growth is much stronger than in fully matured or developed markets such as the UK. As an example, some emerging markets are expanding at 8-10% annually, which produces a productive environment for business. 

Higher potential investment returns 

This is particularly real for bond markets. In established markets returns have slumped to historical lows and earnings can be scarce. Financiers can attain higher earnings by investing internationally. 

Tax on overseas investment income 

Before you begin making overseas investments, ensure you are aware of local tax regulations on foreign income. You can research your tax rates before making a financial investment, however, make certain you’re capitalising on any tax authorities schemes for avoiding double taxation. For any kind of certified international tax obligations that you’ve paid, you can either claim a deduction or itemise your tax return. This will keep you from needing to pay twice for the same financial investment. 

You’ll also wish to know the tax schemes of the nation in which you’re investing. For instance, Italy has a capital gains tax that would tax you 20 percent of proceeds that a non-resident makes from selling stocks. Spain keeps 21 percent of these gains. There are also tax obligations on dividends and interest revenue. Nevertheless, if you choose to invest in a nation like Belize, there is no capital gains tax in any way. These are points to keep in mind when choosing where you want to invest. 

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Foreign exchange risks on overseas investments 

A huge consideration when making an overseas investment of any type is the foreign exchange risk. In particular when making overseas investments into emerging markets which typically are linked or posses’ exotic currencies.  

Fortunately, a foreign exchange broker can offer a multitude of foreign exchange contracts to manage volatile currencies and fix rates when they move in the investor’s favour. 

When selling the investments and repatriating the initial capital and profits a foreign exchange broker can also advise on the most efficient way or repatriating and converting the rewards back to your home currency. 

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